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Equity investment is the current and next big thing, right? While it can be true or not, you must be watchful so that you do not make costly mistakes. What type of mistakes can you make when you invest in stocks? Read this article to find out.
5 Common Mistakes To Avoid In Equity Investment
1. Concentrating on One Stock or Industry
Yes, you have a favorite company. However,
considering that you cannot predict with 100% authority that the company will
continue performing well in the years to come, you have to diversify your
portfolio.
The same thing applies to industry. The
same factors affect companies in the same industry. Therefore, when
diversifying your portfolio, go for different companies in different
industries.
2. Ignoring Your Risk Tolerance
What is your risk tolerance? In simple
terms, how much of your wealth do you think will hurt you so much when it loses
its value? Let’s say 20%. This means that your maximum risk tolerance is 20%.
Therefore, go for companies with risk exposure lower than 20%.
3. Chasing High Returns
Some companies give high returns indeed.
However, these same companies also offer higher risks. Please note that return
and risk are richly correlated, so the higher the return, the more likely the
higher the risk.
4. Not Monitoring Your Portfolio
Do not just buy the shares of a company and
leave it. You have to continue monitoring your portfolio. How is the company
performing? How has your wealth increased? If your wealth has decreased, what
is the cause and will it be long-term? Continue asking this plus a whole lot
more.
You can monitor your portfolio using the
portfolio management tool in the Assessworth platform. Awesome, right?
5. Not Rebalancing Your Portfolio
Portfolio rebalancing is an overlooked
subject. However, it just might be what will save you in your investment
journey. You rebalance your portfolio to prune overperforming and
underperforming assets.
If you do not do this, the assets in your
portfolio might become too risky (and unpredictable) or not perform as much as
you want.
At least twice annually, visit the Assessworth Portfolio
Reconstruction page, select your portfolio, check the unsuitable assets in
the portfolio, and then use the portfolio reconstruction tool.
Conclusion
Now, we can say for sure that you are good
to go. Aside from reading the wonderful articles in this blog, you can equip
yourself fully for the world of investment by making use of our rich tools and
other resources in the Assessworth platform. What are you waiting for?
