Money at 30: What Not to Do When Investing
Just a few weeks ago, I wrote a review of the app Robinhood, which I said makes it easy to get started with investing. Since posting that, I’ve been surprised to learn that I already had a couple of friends who had been using the app themselves. Unfortunately, to my dismay, I also discovered that some of their investment habits weren’t exactly the best.
Given this recent experience, I thought I should highlight a few things you should absolutely not do when investing, regardless of whether you’re a first-timer or an old pro:
Borrow money to invest
One of the things I always try to make clear when I talk about investment opportunities is that you shouldn’t invest anything you can’t afford to lose. With that in mind, borrowing money in order to invest is usually a bad idea as well.
This topic came up after my friend confessed to me that he had taken out a cash advance on his credit card in order to buy more cryptocurrencies on Robinhood. He justified this move by noting that the current return he was getting from crypto’s recent bounce back were more than his credit card interest rate. My response to this seemingly logical explanation was this: “For now.” What happens if crypto takes another dive and he’s left with even less than he started with? Especially given the volatility of Bitcoin and other cryptocurrencies, I think it’s pretty easy to see why this plan is a bad one.
Gamble your emergency fund
Even if you have “extra” cash that you’re thinking about investing, there may be some other money milestone you should reach beforehand. A big example of this is ensuring that you have an emergency fund in place to help you stay afloat when life throws you some financial challenges. Having an emergency fund is important for a number of reasons, ranging from job loss to medical bills and more. Because of this, you won’t want to gamble with these funds and risk defeating their purpose.
Keep too close of an eye on your portfolio
Finally another popular mistake that newbie investors like myself tend to make is paying too much attention to our stocks and other investments. Turning again to my crypto-buying friend, he says he opens Robinhood dozens of times a day to check up on his portfolio. Not only is such a practice likely to add unneeded stress to your life but could also lead you to make poor financial decisions as a result.
While there are day traders who make money by riding the ebbs and flows of the market, most people tend to hold onto stocks for the long-haul. Because of this, there’s not a ton of value in “babysitting” your portfolio from day to day. Although there are always exceptions to the rule, most of the time it pays to stay the course and not let temporary pullbacks scare you into selling your stock (only to watch it go back up). Besides, if you’re following my first rule of only investing what you can afford to lose, you shouldn’t have to worry too much about your investments not paying off.
The great thing about apps like Robinhood is that they make investing more accessible to people like me who want to learn the ropes. However, what’s missing from the equation are lessons on what not to do. If you’re considering getting started with investing, be sure that you’re not risking your financial stability to do so and don’t become too obsessed with watching your stocks. If you observe just those two rules, you’ll be farther ahead than many who have taken on the market.