5 critical investment mistakes to avoid during the current crisisHampton Wealth
The terror of COVID-19 is taking hold of the world, creating mass panic. Markets worldwide are plummeting. Things could get worse as the mortality count worsens and governments take stringent steps to contain the virus. The situation could bounce back when nations get the worst of the crisis behind them and financial regulators’ corrective efforts take hold. For now, what investment mistakes should we avoid?
There are plenty of assumptions and theories. Amidst the chaos, investors are making plenty of mistakes that could have dire future consequences.
Here are just some of the investment errors that investors are making across the board.
Making drastic assumptions
The virus has gotten the better of so many people’s nerves. Amid emotional turmoil, plenty of investors are scrambling to re-position their assets or change their strategies in desperation. Investors are making broad assumptions about market movements and the right timing for turning around their stocks.
It is not safe to assume anything right now. Some investors are confident that the era of strong stock gains may not return and it’s best to just sell everything on the next decent upturn. Others are convinced that it’s too late to readjust an equity-heavy portfolio. How are they reaching these conclusions? Most of them have no evidence to back up their claims. In investing, assumptions can turn out to be big investment mistakes.
Making decisions out of fear
One sound advice for investors in this time of crisis is to ignore the markets. Leave stocks and bonds alone! This is, however, easier said than done.
As the COVID-19 outbreak intensified, the markets entered a time of unprecedented volatility. Making calculated decisions amidst volatility usually risky, especially for beginners. Generally, even many professionals stay away from volatile markets.
Not diversifying over time
It is common knowledge that spreading eggs across multiple baskets is a good idea, and diversification is critical over time. Investing everything in one go into stocks is risky if the timing coincides with falling stock markets.
Although most investors who sit tight will probably get their money back eventually, they can do better by dripping their money into the market. This could be as frequently as once a month for three years, or once every three months. Time is a friend. Risk can be reduced while there may be a good likelihood of benefiting from any recovery.
Selling positions out of panic
It’s easy for investors to panic and start selling off assets in an attempt to avoid further damage. In any stock market collapse, one thing that can be taken as certain is that there will be losses if assets are liquidated while they are down. So, it is best to stay calm and leave investments intact to avoid investment mistakes.
There is a long history of the stock markets emerging from downturns, even from big ones. Leaving assets alone is the best strategy unless critical expenses have to be funded in the near term.
Accessing brokerage accounts online can be both a blessing and a curse. On the one hand, making quick trades or seeing how portfolios are doing can be great. On the flip side, however, it also possible to be obsessed over defeats.
During this downturn, it’s best not to monitor portfolios every day. Instead, brokerage accounts should be checked every few weeks, and stocks reviewed just before logging out. This will be less taxing on mental health and emotions.
On the back of economic calamities such as that triggered by COVID-19, investors should avoid making drastic assumptions especially out of fear. Panic selling and over- monitoring portfolios are generally not the best paths to follow. Investors are better off remaining calm because markets should eventually recover.
Hampton Wealth specialises in sourcing high quality, listed bonds and funds with a focus on providing returns in excess of normal off the shelf investment options.
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