- As a rookie investor, I’ve taken a lot of bad advice. A friend’s advice recently cost me hundreds.
- I invested in individual stocks, and my friend told me not to sell for at least five years.
- But that strategy works better for diversified index funds and ETFs, not individual companies.
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I pride myself on being a very stubborn person who rolls my eyes when people give me advice. However, since I’m a relatively new investor, I tend to grab onto all the investing advice that comes my way — the good, the bad, and the stuff that’s led me to make big mistakes.
This lack of self-confidence when it comes to investing has led me to follow faulty advice around stocks to buy (based on hype from other rookie investor friends of mine), putting more money in the market than I was comfortable with (based on advice from an ex-boyfriend), and even selling stocks before I really wanted to (based on the advice of someone I stumbled upon on Twitter).
But the latest and greatest mistake I made is one that recently cost me hundreds of dollars in a month.
My big investing mistake
When I started putting money in the stock market early last year, a friend of mine — who had been investing in the stock market for over a decade — told me to hold onto my stocks for at least five years and never sell, no matter what.
Back then, I asked if I should consider selling if the stock price dropped significantly or if I read about changes within the company that I felt weren’t good. This friend said no and reminded me to never sell.
How did that advice fail me? Because I took a passive approach and didn’t spend time keeping up with stock prices, news on the companies I’d invested in, or even what analysts were saying about some of the stocks I owned, I found myself losing a couple hundred dollars last month when stock prices dropped.
Taking this passive approach to investing might work well when you invest in funds, but based on my experience, it can hurt your finances a lot when you’re investing in individual stocks.
The advice I wish I’d been given instead
You have to monitor the performance of a company if you’re going to invest in a single stock
First, it’s not just about monitoring stock prices and deciding whether to buy or sell. It’s about spending quality time monitoring your portfolio and understanding what problems a business has, how the industry is doing in general, and overall trends. Knowing these things, on a weekly basis, can help you make a more level-headed decision (and guess) as to when to sell the stock and when to hold onto it.
Diversify, diversify, diversify
Second, I learned that it’s more important to have a diversified portfolio than to hold onto a bunch of stocks in the same vertical. I was buying stocks in one category (using apps and social media to guide me) and sitting on them without watching or caring. When some of my stock prices dipped, my portfolio took a big hit.
It would have been a better strategy to first have a diversified portfolio or to invest in a diversified index fund or ETF-based portfolio. That way, my money would be more spread out and I’d be more insulated from the risks of investing in individual stocks.
Don’t put your money in an account and never look at it again
Finally, I wish I knew that any time someone tells you to put your money somewhere (whether it’s in a savings account or a mutual fund) that you should never leave it there, unwatched, and commit to making no changes. I have made it a new goal of mine to check up on all my financial accounts regularly. That way, I can see any changes (whether in interest rates or stock prices) and strategize how to optimize my financial plan.
Because I am a rookie investor and don’t have too much money in the stock market, this mistake only cost me a few hundred dollars. But it also taught me a valuable lesson and made me realize that I need to trust my gut more when it comes to accepting advice from others around my investment strategy.