Avoid These 3 New Investor Mistakes

If you are a new investor, there is a good chance that you are going to make some mistakes when you start trading. This is understandable, and you may learn from some of those. However, it is useful, of course, to have information that can help you avoid some of the most common mistakes in order to enjoy greater success overall. Here are some of the most common new investor mistakes to watch out for.

1. Selling after a Dip

Many times, a new investor will liquidate his shares after a dip in the market. The price of the stocks that he purchased might go down a bit, and the investor will panic. Because of this, he will sell the stock and take a large loss. Just because a stock has declined in value, this does not mean that you need to sell your shares immediately. Instead, you should think about hanging onto your stock and waiting for a rebound. Sometimes, a company will decline in value so rapidly that you lose your entire investment. However, you have a chance of rebounding as well. Therefore, you need to base your decision to sell on other factors instead of selling just to save your money. Many experienced investors wait until the market declines before they buy. This way, they purchase the stock at a discount and get to ride the gains to the top.

2. Basing Decisions on the Experts

When you are a new investor, it is very tempting to base your trading decisions on what the experts say. There are many stock experts out there that are more than willing to share their opinions with the masses. They will often give blanket recommendations to the general public about particular stocks. They might say to get out of a particular stock, and you may be tempted to sell just because they told you to. The only problem with these experts is that they are not familiar with your individual situation. You need to look at your own portfolio and do your own research. Experts are commonly wrong, and you should not believe them just because they write a column for a website. 

3. Ignoring Transaction Costs

Many new investors also make the mistake of ignoring transaction costs. When you are trading stocks, you always have to be aware of how much it is going to cost you to buy or sell. When you own shares of stock, you are going to have to pay your broker a certain amount of money in commission. In addition to this, you are going to have to pay taxes on the gain from your trade. If you have held the stock for less than one year, you are going to have to pay taxes at your regular marginal tax rate. If you hold the stock for longer than one year, you are going to get to pay the long-term capital gains rate of 15 percent. This means that you need to always think about whether you should buy or sell at this time because of the transaction costs that will be incurred.

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