If you are getting ready to prepare last year’s taxes and notice that your stock loss deductions are higher than normal, you may wonder where you went wrong or if the circumstances of the losses were out of your control. While it is nearly impossible to make a gain on every investment, there are some errors that you can avoid, whether you dabble in stocks or real estate. As you move into the new tax year, avoiding these common errors can help you reduce investment losses and may even earn you higher gains.
1. Avoid Depending on Historical Gains
While some investments have performed well from a historical perspective, it is wise not to depend too much on that past history. Stock performance can change rapidly depending on the economic climate, political shifts, and the nature of the market you are working in. Some opportunities can perform quite steadily over several years; however, avoid taking that as a guarantee and invest conservatively until you start seeing some steady gains.
2. Trying to Earn Before You Learn
Investing can seem like an exciting prospect, especially when you have some extra capital you want to put to use right away. However, investing in any opportunity before you learn the basics can be disastrous. Not only are there a variety of terms and vocabulary you need to know, sharpening some life skills, such as how to make quick decisions and read people, can be important as well. Jumping into any investment venture, from stocks to peer-to-peer investments, can be both foolhardy and costly.
3. Failing to Balance Risk with Conservative Investing
One of the most important caveats of investing is balance. You will probably not make the gains you dream of if you play it safe all the time, and you might consistently lose money when you plunge ahead on investments that lure you in with large returns. As neither of these actions is likely to make you a successful investor, learning to balance instinct with logic can be a smart step toward sharpening your instincts.
Because it can be difficult to know when to move forward and when to hold, one way to decide is to gauge the financial risk. Research the opportunity carefully and look into a few factors that can include whether this is a new opportunity, the stability of the current market, and whether similar investments have performed well in the past. These factors can create a risk pool that may help you make the best decision possible.
4. Investing With Overconfidence
Even some of the most successful investors in the world, such as Peter Foyo, CEO of Principal Standard Group, must gauge risk and be cautious when the market is unstable. Despite their massive success in the real estate market, Foyo and his investment group members cannot depend on past successes to ensure they will come out ahead, and it is wise to take a cue from this. Experiencing success with investments can bolster your confidence, but unless you remain humble enough to remember the risks of each opportunity, you may stumble and endure a considerable loss.
5. Confusing Flash With Fact
As you work to build your investment knowledge, you may encounter certain websites or individuals who want to sell you their investment expertise. While some might be quite knowledgeable, you may want to approach each with a grain of salt, especially when it comes to investments that contain more risk than usual. Gleaning knowledge from how-to books and financial advisors can be an important part of the learning process; however, you may want to sort through what you gain carefully and inspect what was offered to you as investment truths closely.
Building wealth through investing can be an exciting venture. However, knowing which mistakes to avoid early on can help you earn gains confidently yet wisely each time you encounter an opportunity.