Cautions To Take To Prevent Bad Investment Decisions

From potential frauds to unfounded speculative investments, there are many manholes that unsuspecting investors can fall into if they’re not careful. Like many manholes, you just need to spot them from miles away to be able to avoid them.

Investing might generally be an unpredictable venture, but it does have its rules. While we might not always profit off our investments, there are certain habits or actions we take as investors that make us prone to making poor investment choices and mistakes that can cost us avoidable losses.

From potential frauds to unfounded speculative investments, there are many manholes that unsuspecting investors can fall into if they’re not careful. Like many manholes, you just need to spot them from miles away to be able to avoid them.

A lot of times, our emotions might come in the way of our better judgment; other times, we might simply fall prey to wrong advisors pointing us in the right direction and might be too lost in the potential gains to try to find out what the catch is. For precautionary measures, here are some of the tips to bear in mind.

Beware of “Sweet Talkers”

Sometimes, many of the decisions we take are because we are wooed by the idea of possible gains. One of the advantages of investing in the stock market is that it provides structure and transparency.

Many unstructured investment opportunities with promises of extraordinary profits are simply disasters waiting to happen. The sweet talkers typically have the same promises in their stash. They would either promise the safety and security of your funds with nothing solid to back it up, large gains, or short term periods with low risks involved. Beware of sweet talkers.

Do not invest in what you do not understand

As we have said before, it is important to remain within your circle of competence. Even good investments might end up not working out when you don’t know what they’re about. It is important to avoid investments that are confusing by trying as much as you can to grasp them to a very basic minimum.

Ask questions to seek clarification and where all attempts at understanding are not working or if the investment isn’t being explained in a way to aid understanding, it would be for your own good to can walk away from it.

Avoid investments with direct commissions to advisors

In situations where you have to pay commissions upfront before being able to invest or where the advisor has a direct gain from the investment opportunity that he or she has proffered for you, you might want to take caution. This is because the advisor might be giving advice based on his or her own self-interest.

That is, because of the incentive he or she stands to gain. Unfortunately, fiduciary relationships do not guarantee that an investment opportunity would be good for you. As such, you must take caution of sales pitches or marketable investment opportunities.

Don’t be in a hurry to trade

There is a thin line between exploring opportunities and simply moving too fast. If you are one to make trading decisions too speedily, there are high tendencies that you will pay dearly for it. For the purpose of clear decision making, it is important to review your investment plan, strategy, and the implications of your actions before making and/or implementing any decision.

Just a few measures of caution can save you from dire consequences. Don’t have a sad story to tell.

Written by Lawretta Egba.