Investing comes with many benefits, if you understand what you are doing. If you dive in too soon, you could end up with a portfolio of assets that don't align with your goals. Even worse, you could lose money because you rushed to buy assets deemed worthless by the market.
I started my investing journey in college and learned many valuable lessons that have made me a better investor. I also made many embarrassing mistakes, but I'm grateful for them all because they helped me clearly define my investing goals.
I'll share some major lessons I learned and give you pointers to help you avoid them.
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1. I started without a game plan
Benjamin Franklin has a famous quote that says, "If you fail to plan, you are planning to fail."
When I started my investing journey in college, I just wanted to put my money to work and multiply my earnings potential. Therefore, I asked my colleagues how to open an account and execute orders so I could get started. As soon as my account was opened and funded, I went on the hunt for the cheapest stocks to add to my portfolio. Within a year, my initial batch of stocks was worthless.
Lesson learned: Buying the cheapest stocks in the market is not a viable strategy to win over the long term. You could get lucky and hit the jackpot, but without a plan in place, you risk playing a guessing game and taking an unexpected financial hit. Read books, invest in financial newsletters, and take courses to help you make an informed investment decision.
2. I did not diversify my portfolio
You're probably familiar with the saying, "Don't put all your eggs in one basket." This can be helpful advice when you start constructing your investment portfolio. Instead of throwing all your money at one investment, consider choosing stocks from different sectors or risk profiles. Also, determine if you want to lean on growth stocks, large-cap stocks, dividend stocks, or other types of assets to grow your portfolio.
My initial portfolio of stocks was limited to one sector, and I didn't even consider how dividend stocks could play a role in my portfolio.
Lesson learned: Consider choosing assets that have low correlation. This can protect your portfolio when one specific sector or class of investments is misbehaving.
3. I did not invest consistently
It's tempting to invest a lump sum into your investment portfolio and call it a day. But swings in the marketplace can cause the value of your portfolio to decrease the next day. That's why it may be beneficial to consider dollar-cost averaging. With this strategy, you can invest a specific amount at regular time intervals, like every week, and accumulate more shares when the price falls.
When I started my journey, I made a lump-sum investment and didn't add any additional dollars to my account. If I had consistently allocated money toward my investments and bought high-quality stocks, my portfolio could have benefited from the power of time and compound interest.
Lesson learned: Investing is not about where you start and how much you start with. It's about consistently allocating money toward investments that align with your goals. Dollar-cost averaging is something you want to consider if you want to increase the growth of your portfolio over time.
4. I did not maximize the power of my Roth IRA
The Roth IRA (individual retirement account) can be a powerful tool on your investment journey. You can pay your tax bill upfront in exchange for tax-free income later in life. If you want to maximize your income potential, you have to invest the money you save.
That was one of my Roth IRA mistakes. I opened an account and funded it. However, I assumed my account would automatically be invested in assets that could supercharge my portfolio. That wasn't the case. The money was just sitting in my account, collecting pennies.
Lesson learned: Understand how various accounts in your portfolio work so you won't leave money on the table. Also, do your research on various companies to determine which one offers the tools and resources needed to help you feel confident on your journey.
Fail fast and keep growing
If you stumble on your investing journey after reading about my bloopers, don't beat yourself up. Although I made investing mistakes in college, I'm glad I gave myself a chance to fail early on my investing journey. Investing is not about perfection -- it's about progress. If you can increase your chances of allowing your money to work for you, you're already winning.
Start your journey as early as you can, and give yourself a chance to grow. Failing fast made me more thoughtful and disciplined, traits that will pay dividends beyond the world of investing.
