Frankfurt / Main – The ongoing low interest rate phase is driving more and more investors to the stock market. Above all, “newcomers” run the risk of committing typical investor mistakes. These typical mistakes can be easily avoided. Five common problems:
Too little information
“The main problem is that investors do not inform themselves sufficiently in advance and do not know where the risks are,” says Klaus Nieding, President of the German Investor Protection Association (DASB). Thus, of course, can take place with the investment adviser no on equal terms, warns the specialist lawyer for banking and capital market law.
“As a matter of principle, investors should only buy products that they understand,” advises Ralf Scherfling, a financial expert at the consumer center in North Rhine-Westphalia. “Before making any purchase decision, investors should consider: How much risk do I want to take and what can I afford financially?” Advises Prof. Martin Weber, who teaches banking management at the University of Mannheim. One thing must be clear to investors: anyone who is offered a high-return opportunity that is rich in opportunities will thus take on a higher risk – as all three financial experts agree.
Too much trust
Nieding sees yet another problem: “Investors are often too trusting to their bank or investment advisor and think the advice is free.” This is usually not the case, since the consultant usually collects a commission for his recommendation. Financial expert Scherfling says: “If in doubt, investors should ask an independent adviser again.” Nieding advises to engage a fee-based consultant. Although he demanded a consulting fee, but was not controlled in the product selection of a commission-led conflict of interest.
False predictions and chasing trends
“A happy fallacy: closing from the past to the future, just because the stock has risen lately, it does not have to go on like that,” says Scherfling. He is convinced that forecasts of so-called stock market gurus should be critically questioned.
Weber also knows: “It is impossible to tell in advance whether it goes up or down on the stock market again.” The price development can best be described by a random process. For most investors, this would be difficult to accept, said Weber. He advises investors should not be influenced by short-term trends. “It’s better to start with a strategy and stick to it,” says Weber.
To misjudge the financial situation
“A typical mistake is that investing does not fit in with your personal life situation, so if you need your money to buy a new car in three years, you should not invest it in equity funds,” advises Scherfling. As an investment period, a term of ten years makes sense. Then you could leave the money sometimes, if the price is bad. “Anything else is a brave decision that will make you lucky, but can also make you lose.”
Also, you should only invest money if you are debt free. “The interest on a loan is currently much higher than most of the interest that you get on an investment.” Scherfling recommends that one part of the money always be withheld: “As a rule, three net monthly salaries make sense, or at least 5,000 euros.”
Losers keep too long
If the price of own shares falls, investors ask themselves: sell or hold? Some find it difficult to admit wrong decisions, Scherfling knows. Here you have to look carefully, why the stock has fallen and act rationally. Sometimes the price goes down because it suffers from a general negative trend in the market, explains Scherfling. If the company does not do well, sell the stock. “If, on the other hand, the company is sound and promising, it may be worthwhile keeping it, even though the price has fallen for a short time,” advises the finance expert.
Weber advises: In such a case one should ask oneself whether one would buy the share again with its current course. “If not, then investors should sell them better,” says Weber. Another tip that all three experts give is: putting Stop Loss marks early on. “If, for example, the stock dropped by 10 percent, it will be sold automatically,” explains Nieding. This strategy protects against major losses.
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