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Investment Dangers: Common Investment Pitfalls and How to Avoid Them

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Investing isn’t a simple field to break into. There are countless problems that you might encounter on your road to becoming a full-time investor of anything, be it a business or property. Because there are so many uncontrollable variables, it’s natural to encounter some rather dreadful pitfalls now and then.

Whether you’re investing online or doing it the old fashioned way through a trading floor, here are some tips to help you avoid common investing pitfalls to prevent you from throwing your money out the window.

Take analysis and hypotheticals with a grain of salt

Business is an extremely volatile subject. Just because a wealth advisor or financial planner shows promising results in an investment, that doesn’t mean they can tell the future. No matter how analytical and detailed a report is, you can’t avoid the possibility that something might go wrong overnight and your investment will turn from a “sure win” to a catastrophic failure that will leave you bankrupt. If a financial advisor recommends a stock to you and bases it off of historical data and charts, then take their advice with a grain of salt—don’t treat them like a prophet.

Don’t ignore taxes

Now matter what your source of income is, you can’t ignore taxes. A tax attorney will do most of the work for you if you’re unsure how to tackle this subject, but just keep in mind that as long as you’re making money, you are going to be taxed. Investments can have interesting interactions with your taxable income, and it’s a complicated subject that only the most proficient of attorneys and financial managers can shed light on.

Focusing too much on low-priced stocks

Buying thousands of low-priced stocks due to “more opportunities” is a foolish strategy that takes more effort to manage than more expensive but fewer shares. Cheap stocks are cheap for a reason. They’re selling at their value and as a result, you’re buying stocks from a company that’s having troubles or can’t get enough traction to be worth more. Cheap stocks aren’t “bargains” unless you have some way of knowing they’re going to suddenly leap up a couple hundred ranks in popularity. Instead of focusing on this bad habit, focus more on expensive stocks and invest wisely instead of trying to play a bargain game of investing.

Know when to pull out of a losing battle

For many people, investments can seem like gambling because you’re putting money on the line and, with some smart decision making, hoping to see a return on your investment. However, unlike most gambling games, you can’t pull out of a losing battle because you’ve already committed that money. Fortunately, you can do so with trading and investments.

You can overcome small losses quite easily. If you see a price plummeting or showing some odd signs of variation, then it’s a good idea to pull out and cut your losses before they snowball into larger losses. The key to successful investments is knowing when to quit. Even if the price rises at the end of the day, don’t curse yourself for missing out on a good investment opportunity. You can’t tell the future, and you made the right decision to act on smart decision making rather than guessing.

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