bad investments

5 Common Fears of Investing

September 18, 2020 By Tamila McDonald Leave a Comment

When it comes to investing, the hardest part is often starting the journey. In the beginning, fear holds a lot of would-be investors back. They worry they may lose money or that they’ll choose the wrong investments. They may assume that, since they aren’t stock market experts, they simply couldn’t make smart choices. However, most investors discover that these initial fears were unfounded once they begin. If you fear is holding you back, here’s a look at five common fears of investing and how to overcome them.

1. Losing Money – One of The Biggest Fears of Investing

Likely the biggest fear that any prospective investors may have is that they’ll lose all of their money. Usually, they assume they won’t make the right investment choices, causing their cash to evaporate because of bad moves.

While it is true that investing comes with risk, that doesn’t mean you can’t lessen it. For example, a diversified portfolio can better withstand market fluctuations, offering you a degree of protection against the unexpected. Starting with index funds can also reduce risk, as they have a level of innate diversification.

However, if losing money is your biggest fear, consider starting small. Educate yourself on the various options, particularly approaches that support faster diversification. Focus on a strategy that comes with an amount of risk you can stomach.

In time, you can always invest more. The slow and steady approach allows you to get your feet wet without having to put in a ton of money right away, which may allow you to grow more comfortable with time.

2. Choosing a Bad Investment

In a similar vein, some would-be investors worry that they’ll choose the wrong investments. This is especially true for anyone looking at individual stocks, as the degree of risk there is automatically higher than using a more diversified approach.

Ultimately, when it comes to choosing investments, research is your ally. If you review information from trusted, reputable sources, you can better gauge the quality of a potential investment move.

Additionally, it’s important to note that, even if you choose a bad investment, that isn’t necessarily the end of the world. You can always adjust your strategy, using the experience as a lesson that helps you make wiser choices moving forward.

3. Market Volatility

There have been many events in recent history that show how volatile the market can be. COVID-19 is a solid example, as well as the crash during the Great Recession. Some may even remember the collapse of the Dot Com bubble. All of those events can be scary for investors, leading to significant losses seemingly overnight.

However, recovery typically flows a crash. The markets overcame the Dot Com collapse and the Great Recession. There’s positive headway after the initial COVID-19 loses as well, and some investments have even experienced gains throughout.

If you have long-term financial goals that involve investing, volatility isn’t something to fear. Usually, the market ebbs and flows, and a diverse portfolio can often weather the storms.

For those who have shorter-term goals, then market volatility isn’t necessarily a dealbreaker either. You may simply want to use a more conservative strategy. While less risk often means smaller gains, that could be a fair exchange in your eyes.

4. Whose Advice to Trust

Research is a critical part of the investment journey. However, figuring out which resources actually have your best interests in mind isn’t always easy. There are plenty of untrustworthy voices and even outright scams. For a would-be investor who hasn’t taken the leap yet, it can be anxiety-inducing.

If you have a lot of doubts, you can always start with a certified fee-only financial advisor. They don’t make money on commissions, so they aren’t being encouraged to recommend anything that’s not right for you.

It’s always wise to doublecheck any news or recommendations you spot. If you hear something from a resource you aren’t sure about, looking for additional information on the topic through reputable sources is a smart move. You can see if the details align, or if there’s another side of the story you need to consider. That way, your odds of being fully-informed go up, making it easier to make sound choices.

5. Not Having Enough Money to Get Started

Many people want to invest, but they worry they don’t have enough money available to get started. This is especially true for anyone who has researched opening accounts, only to find brokerages that expect large starting deposits.

While it’s true that some brokerages require you to start with a substantial sum, many don’t. In fact, some have no minimum starting balances, no minimum monthly contributions, and low fees.

Many robo advisors have very low barriers to entry. Explore those options to see if any support the kinds of accounts you want or the investments you’d like to make. It can let you get started even if you don’t have a ton of cash available. Then, if you decide to open up an account elsewhere once you’ve generated the money, you can always do that.

Did you have to overcome any fears of investing before you started? Share your thoughts in the comments below.

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How to Spot a Bad Investment

September 22, 2016 By Charles Leworthy 2 Comments

Bad investments are a quick way to burn all your capital and a common practice even for the bigger players, like international companies. Even Google is not short of such unfortunate events, and they got one ticket to failure when they acquired Motorola.

However, there are some tips that give a bad investment away. We’ve gathered 10 such signs that tell the truth, and once you bump into them, it is recommended to create a retreat plan as soon as possible.

It all comes down to a well-built plan

A bad investment is most importantly a reflection of the indecisive behavior of the investor himself. If he doesn’t know precisely what he is looking for, what demands to impose, what market niche he is proficient at, there are high chances of a failed mission.

The executives will take advantage of this weakness, and will only focus on the best aspects of their business. Having a solid financial plan before starting negotiations is the best way to avoid a bad investment in the first place.

Stock Price

It is not enough consulting the current stock price of your future investment, but you should carry an in-depth research on their background. Gather all the information you can from their investor relations web pages, the database of the online website Edgar that belongs to the U.S. Securities and Exchange Commission (SEC) or other reliable financial news sources.

Then calculate their price-to-earnings ratio based on the last 4 financial quarters. Take as a point of reference the average P/E ratio which is 15. Given the position your prospective investment has in relation to this average number, take a calculated decision of whether to invest your capital or not.

Product Popularity

Most people would see the high popularity of their future investment as a good sign of a high marketing reach. However, this is far from being a jackpot and rather a good example of a bad investment. A product that is in high demand is likely to have already attained the peak of the successful scale. The market will soon be flooded by similar and even better versions of the product that will quickly saturate every niche domain of the market. The smart move towards a good investment would be tracking down a future popular trend before it becomes wildly known to the public.

The company doesn’t have a clear background

The moment you realize it is hard to find solid information about the company is the exit point of your financial intentions. An honest company will always adopt a transparent policy when it comes to their business activities. There is no reason to conceal a good investment source, so the lack of information will speak volumes and reveal a bad investment.

The company requires too many resources

Even though the company looks promising, there is always a bad sign if the business needs a lot of resources to succeed in its market. Do some math and find out how much financial assets, time and risks the company needs to restore its progress to success.

If the results will not allow you to focus on your other business plans, it is no worth taking the investment into consideration. There are high chances that the return of your investment will be lower than your initial investment, and that’s bad for business.

Balance sheet

Always look at the balance sheet of your spotted company. Compare the balance sheet with their competitors’ and place the company in a clear position. If it stands too far behind from its competition, you have to analyze your actions better.

Take a look at their investments and financial decisions. If their low position is related to a few bad moves, there’s no reason to worry too much. As an investor, you will have a word in boarding meetings (depending on how you negotiate the contract), and you can set the course of the business on a better path. However, if all their financial decisions lack professionalism and simple rules of common sense, you are facing a bad investment.

One-sided series of investments

Even though you are a dominant figure in one market branch, that doesn’t mean that you should focus on one direction. If the only branch you are active in loses its value overnight, all your investments will collapse one by one. Diversification is a key strategy to overcome the limits imposed by one-sided investments. If you invest in several niches, you will manage the risks of losses better and enjoy higher returns.

Bonds

Speaking of returns, you can decide the next steps of your investment by making some basic equations. Find out how much time a bond needs to reach its maturity. If it will take years to reach this point, this means that your expected high returns will find their way to you in the same space of time. So, this means a bad investment if you are looking for short-term gains. Going for long term relationships is the best solution for any kind of quality revenue sources, be it investing or trading. Learn a few things about it before you start pouring in your hard-earned funds.

The people behind your investment

Any product in the world is created around the ethics of its makers. If all the executives want is a way to fool customers around for quick yet short-sighted revenue, the product will tell you that. If the executives are truly interested in raising the quality of their community through hard work and amazing innovation and serve the greater good, their product will surely be influenced by their ethics.

So, you have to spend a great deal of your attention on the people that handle the wellbeing of the product you are interested in. Stay away from managers that treat their customers and colleagues badly or else your business is bound to fail.

It is too hard

No investment is a paved road, but it requires a strong commitment from both parties. As an investor, you need to proactively participate in the evolution of your capital and don’t expect the high returns to come by themselves.

So, there is no easy investment and the executives that will promise you that are not to be trusted. Choose a new business with a clear action plan and a good team of professional behind it, and work with them side by side to build a better company.

And this is where the list of the 10 tips on how to spot a bad investment comes to an end. We’d love to hear your tips that you gathered from your own experience saved you from really bad decisions. So if you have any, do share them with our community in the comments bellow!

Terrible Investment Advice

May 8, 2012 By Dana O. Crandell 3 Comments

Ask around and you’ll find plenty of people willing to give you “sound” investment advice. I’ve never been much of a conformist, so I’m going to offer you, instead, ten pieces of really terrible advice on investing. Why? So you’ll recognize them when you hear them from the “experts” or your friends. Some readers will quickly come to the conclusion that most of what I’m about to write isn’t rocket science; it’s just common sense. Those readers are right on target. It’s too easy, however, to put common sense on the back burner when someone’s telling you about how you can make a fortune. Here are ten pieces of terrible investment advice that you want to ignore if you ever hear any of them.

“Put everything into ________”

Fill in the blank with anything you like; if you’re talking about investments, this is bad advice. Any investment involves risk and you need to have a fallback plan if things go south. The plan may be something as simple as holding some cash in reserve if you don’t want to build a diverse portfolio.

“Use a secured loan to borrow investment capital”

Using borrowed funds can be a good leverage strategy and there’s always the chance that it will pay off. In fact, the numbers are almost always in your favor if things go well. The down side is that you increase your risk and your losses if they don’t. If you’re using collateral to secure the loan, you’re putting it at risk, too. Smart investors borrow only if they have an easy source for the funds.

“Buy into new internet IPOs”

Not every new internet company is going to have the success that Google has. In fact, most of them are consistent losers. New internet companies get a lot of publicity, so they’re tempting. Don’t get talked into investing in one just because it’s new.

“Put some funds into a leveraged EFT”

Chances are this advice will come from someone who made some money on one several years ago. Top financial advisors agree that today’s serious investors need to avoid this type of EFT. You don’t even need to know how they work; all you need to know is that over the long-term, you’ll lose more on bad days than you gain on good days, and because of the high leverage, the losses can wipe you out. Leave these to the day traders.

“Penny stocks are safer”

Because shares cost less, many investors automatically consider penny stocks (shares in smaller companies that sell for less than a dollar) safe. In reality, this is a tricky way to invest, because trading volume has a tremendous impact. There’s also a false sense of value in buying more shares for the money, when it simply means each share is worth less. Yes, you can make money on penny stocks, but a high return isn’t likely and you need to do some legwork before you buy in.

“Buy EE savings bonds”

Savings bonds have been a traditional gift for generations. They offer face-value purchasing and a fixed rate of return and you can invest a little or a lot. It’s also traditionally thought of as investing in the country. So, why am I saying investing in them is a bad idea? Because with a yield of 1.1% there are much better places to put your money, at least from a purely financial perspective.

“Pull your money out of (a solid company)”

If someone advises you to pull out of an investment in your portfolio that’s been delivering consistent returns, think twice. Unless there’s something obvious in the news, some loyalty may be in order. Rumors within the stock market can be disastrous, so don’t be too quick to pull your support for a company that’s made you money.

“Buy the house if you qualify for the loan”

Yes, friends, it’s still happening. Despite all the press surrounding the housing market and foreclosures, many people are still convinced that lenders base loan qualification on the buyer’s best interests. Lenders need to loan money to make money. If you can’t make the mortgage payments, the house isn’t going to be a good investment.

Any advice based on a hunch

Here’s one of those really obvious ones I mentioned in the opening paragraph. Interestingly, though, hunches, good/ bad feelings, and the like are still part of the game for some investors. Unless you literally have money to burn, investment strategies need to be based on facts. Speculation and blind faith are two very different things.

“Buy it while it’s hot”

It’s commonly accepted that buying hot stocks is the way to fast money. While there may be much to be said for using the momentum of a popular stock, it’s important to keep the risk in mind. Don’t be a lemming.

It’s only fair to note that I’m not a major player in the markets, nor do I have a huge stock portfolio. I write for a living. The opinions in this article are based on research, some trial and error and as previously mentioned, common sense. Please, feel free to disagree.

(Photo courtesy of Mr.Thomas)