11 most important mistakes of novice investors
Anton Semenov talks about the most common mistakes of inexperienced investors that prevent them from making money effectively, and explains how to avoid them
Often, to teach people how to do something right, you need to show the consequences of mistakes. An elementary “Don’t cross the road on a red light, or you might get hit by a car” is much more convincing than “cross the road on a green light”. And if we are talking about money, then this approach we will take on Board, since even a hypothetical loss of Finance perfectly mobilizes the brain and attention. So I collected eleven “shoals” that are most often committed by novice investors, and to each of them I added tips on how to avoid them.
1. Invest the airbag
First, let’s look at the definition. The airbag is your minimum monthly expenses multiplied by 6, which are quickly available in the form of cash or a Bank account.
What we don’t measure, we don’t control. This is why it is important to keep track of expenses, otherwise it will be impossible to calculate it. Multiply by 6 months, because this is the period during which it is possible to fix the financial situation in life by tightening your belts.
The minimum is three months, and the maximum is 12 months.
Why do I need an airbag?
If something happens to your business/job in your life, if you don’t have a “safety margin”, what kind of business will you go to do or what kind of job will you look for? Obviously, the first one that came along. And if there is an airbag, then the one that you like;
If you already have an investment and you urgently need a significant amount of money, you will have to pull out of your current investment and lose interest, or take a loan and get to pay interest yourself.
Therefore, all investments are made with money in excess of the airbag.
2. They don’t understand how much to invest
The second common mistake when the issue with the airbag is resolved is that the person is already impatient to start investing. And when there is an attractive opportunity to invest money, a person invests everything there is.
If the investment was unsuccessful, and this happens, the person bites his elbows and puts an end to the investment: it is difficult and not for him. Here the question arises: “OK, Anton, I understand, but how to diversify correctly?»
There are many different strategies, and I will write one of the basic ones. I call it the “28/72” strategy. We take all your capital, not counting the airbag, for 100 %. Now we count how old you are now, for example, 28. This means that 28% of the capital is invested in safe-Deposit instruments: real estate, Bank deposits, in other words, we do not look at profitability here, but look at maximum reliability, as if we are preserved as in a computer game. And we can risk the remaining 72% of the capital by considering instruments with higher returns.
But if you were 70 years old, it would be exactly the opposite, because you have very little time, effort and energy to restore resources.
3. Profitability is the first thing to look at
Thus, all sorts of pyramids, cryptocurrencies and other dubious stories collect heaps of money from inexperienced investors, playing on their greed.
Now to the point, what is the first thing worth looking at?
Risk of loss;
Risk of not making a profit;
The amount of input;
4. They don’t distinguish an asset from a liability
An asset is something that brings money into your pocket;
A liability is something that takes money out of your pocket.
In other words, buying a car, a watch, or a house are all liabilities, because it takes money from you to maintain them. But if you bought a car or a house for rent, it will be an asset, because in this case it will bring in monthly income. In other words, the key mistake here is that when you buy your cars, houses, and watches, you assume that you are buying your assets.
And remember that your liability is someone else’s asset in someone else’s balance.
5. Speculate, not invest
Speculation is when you earn at the moment of exit from the transaction (most often sales). An investment is when you have a systematic (usually monthly) receipt of money.
Speculation is not a bad thing, just don’t confuse it with investment. The value of an investment is precisely in the cash flow that it provides, because that is what you will be able to live on and not work on.
6. No strategy: investment for investment’s sake
The next mistake is that there is no long-term investment plan for 10-20 years and an exact retirement date, so at the first setbacks, the person gives up.
Investment for investment’s sake doesn’t work. There should be specifics: how much money I just need to stop working, when I can buy a car, when I will become financially independent, and so on.
It removes unnecessary emotions, they are unnecessary when investing;
It adds a strong internal motivation to reach the end.
And in General, there are no bad investments — you either get experience or profit.
7. Incorrectly processed transaction
It is a common mistake that people do not read what they are signing at all, or do not delve into the details of the contract, hoping that the other party has taken their interests into account in the contract.
In practice, the other side may have taken into account the interests of the investor, but clearly not in as much detail as it took into account its own. In addition, even if it took into account your interests in Hyper-detail, it is clearly not superfluous to double-check.
Always remember that the party who makes the contract makes it in their own interests, not in yours. And there is nothing wrong with taking time out to study the contract or offer to sign your own version.
8. “I already know everything»
No wonder pride is considered one of the 7 sins. As soon as a person considered himself the most intelligent, it was from this moment that he stopped developing. There is no static position — you either develop or degrade. This means that the person did not just stop, but began to degrade.
The world is changing very quickly. Now the knowledge that a student receives at the University is already outdated by the time they graduate. And in investments, where the price of error is significant, and sometimes fatal, a person for some reason does not consider it necessary to invest in knowledge.
And in practice, the following situation comes out: to give 100 thousand rubles for training in financial literacy/investment, a person considers an expensive step, and to invest their last 500 thousand rubles in one investment project considers an inexpensive act.
9. Burned and no longer invest
I was like this when I started investing, until one day I realized that not investing is much riskier than investing.
Because if I don’t invest, I’m guaranteed to be without a pension in 10, 20, no matter how many years. Assuredly. And the plan — to save a lot of money and go to live in Bali is also not very good, because any amount of money sooner or later ends.
And if I invest, I will definitely become a financially free person sooner or later, even if there are losses along the way.
Example. For some reason, buying a car for 3 million rubles and selling it for 2 million rubles a couple of years later, people do not get upset and do not bite their elbows, but by investing 1 million rubles in an unsuccessful investment, they put an end to their financial freedom.
10. Do not associate with like-minded people
For some reason, we usually make investments on the sly and do not tell anyone about it. No, I don’t mean telling everyone how much money you have and where you put it.
We are talking about like-minded people with whom you can combine capital for joint investments.
What does this mean?
Ability to reduce your investment risks: instead of investing one million rubles in one project, you can invest 500 thousand rubles in two projects;
To be able to enter into larger investment offers where you alone would not have enough money.
This strategy is especially effective if you have free money to invest up to 1 million rubles.
You can find such people among friends/acquaintances or by joining investment communities.
11. Lack of expertise
There is no understanding of how to distinguish successful investments from failed ones. From here, it is either not worth investing in something that you do not understand, or it makes sense to consult an expert.
Here you should not save on the services of a specialist (s), if you do not understand the subject, it can save you millions.