5 investment mistakes new graduates should avoid at all costs
What's the story
Entering the investment world can be intimidating for fresh graduates.
With little to no experience, one could easily end up making mistakes that could affect their financial well-being.
Knowing the common pitfalls is essential to making smart choices.
Here are five investment mistakes new graduates should avoid immediately to secure a better financial future.
Urgent needs
Ignoring emergency funds
One of the most common mistakes is not reserving an emergency fund before investing.
An emergency fund serves as a cushion, covering unforeseen expenses such as medical bills or car repairs.
In its absence, people may be compelled to prematurely liquidate investments, possibly sustaining losses.
It's best to save at least three to six months' living expenses in a liquid account before entering the world of investment.
Neglecting options
Overlooking diversification
New investors often make the mistake of investing their entire corpus in one kind of asset or sector.
This non-diversification adds to the risk, as if that asset performs poorly, it can lead to huge losses.
Diversifying across asset classes like stocks, bonds, and mutual funds spreads risk and gives you a more balanced portfolio that can endure market fluctuations.
Taking risks
Chasing high returns
The lure of high returns can push fresh graduates toward risky investments without comprehending the risks involved.
Investments promising abnormally high returns come with higher volatility and chances of loss.
It's imperative to assess risk appetite and concentrate on constructing a diversified portfolio with steady growth, instead of pursuing quick profits, which may not be sustainable in the long run.
Study
Neglecting research
Failing to do thorough research before investing is yet another mistake many new graduates make.
Depending only on tips from friends or forums online, without understanding the fundamentals, can lead to poor investment choices.
Taking the time to research the companies, industries, and market trends helps in making informed decisions that match personal financial goals and risk appetite.
Extra expenses
Ignoring fees and expenses
Many new-age investors tend to overlook fees for trading or maintaining accounts, which can eat into profits.
Understanding mutual funds' expense ratios and brokerage accounts' transaction fees is important for assessing real costs compared to returns.
Managing these proactively right from the start can keep them from eating into gains, ensuring better outcomes with thoughtful consideration from the get-go.