Mistake 3: Thinking too much about short-term results.
The worst thing that can happen to young investors is for the stocks they buy to fall. Four years ago, countless investors raced out of the market as it crashed, only to find that they locked in losses that would only have been temporary if they’d ridden out the downturn.
You can see a great example of this phenomenon in Europe, where oil companies TOTAL S.A. (ADR) (NYSE:TOT) and Statoil ASA(ADR) (NYSE:STO) have underperformed their U.S. counterparts due solely to short-term concerns linked to where their headquarters are. If you sell based on those short-term results, you’ll miss out on gains when the market realizes that these European energy giants have prospects around the world — just like their better-performing peers elsewhere. If your investing thesis is still valid, stick with it.
Mistake 4: Going for the big kill.
When you have limited money to invest, it’s tempting to put it all on a single stock and hope for the best. But doing that not only exposes you to huge risk, it also leaves you with a limited learning experience for your efforts.
By contrast, diversifying might dilute your total returns, but it makes them more secure and sustainable. Even more important, it gives you broader exposure to what’s going on in the investing world, training you in a variety of important concepts that will have an impact on your investments for decades to come.
You can do it!
Millions of young investors are convinced that the stock market is rigged against them. But staying away from stocks out of fear won’t solve any of their financial problems. Conquering your fear and finding lucrative ways to profit from your investments is the best chance you have to define your financial life in the way you want.
The article 4 Mistakes Young Investors Are Making originally appeared on Fool.com.
Fool contributor Dan Caplinger owns warrants on AIG. The Motley Fool recommends AIG, Statoil, and Total. The Motley Fool owns shares of AIG and Citigroup and has options positions on AIG.
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