4 Essential Areas Where Retail Investors Go Wrong

When new retail investors enter the market, they inevitably start with a higher risk of losing money. Entering the investment world intelligently requires more than some cash in your bank account, but an understanding of markets and risk factors applicable to your financial needs.

When new retail investors enter the market, they inevitably start with a higher risk of losing money. Entering the investment world intelligently requires more than some cash in your bank account, but an understanding of markets and risk factors applicable to your financial needs.

To help point retail investors in the right direction, we discuss some of the common areas they frequently go wrong below.

Failure to diversify investments.

As we often say at Olive, “It Feels Good to Have Options.” Try not to restrict yourself to investing in one industry, company, or type of security. Instead, diversify your investment portfolio by having multiple positions. Giving yourself more options will generally help you generate better risk-adjusted returns.  This is why index funds like ETFs or mutual funds have become so popular.

Shooting to be precisely right.

It is common for ambitious new investors to think they can beat the market without realizing how difficult it actually is. When you’re investing, you are better off being approximately right than precisely wrong. Nobody can predict the price of stock or level of interest rates at a specific point in the future. Options trading, in particular, can backfire when you are precisely wrong. Avoid binary bets where if you are right you win big but if you are wrong you lose it all.

Fear of missing out.

Retail investors are notorious for being late to the party and often get left holding the bag. While it is really hard to sit on the sidelines and watch others make tons of money, remember that when FOMO peaks, the biggest loss follows. If you have $10,000 to invest, don’t use all of it in one shot on a hot tip. Take multiple small bites and spread them out over time.

Hypersensitivity to information.

The worst thing a new investor can do is place a trade and watch it like a hawk. So many retail investors will buy a stock and sell it at the worst time. With so much access to information, it is easy to make rash decisions. Learning to become a temperate investor is key to your success. Don’t let volatility unsettle you. Better yet, make volatility an asset by using options responsibly to hedge your bets.  

So what should you do from here?

Everyone makes mistakes and no investor has a perfect track record. The key is to learn and grow. Focus on developing an understanding of why these common mistakes should be avoided and how you can use them to become a better investor. Developing an investment plan that adheres to your goals, budget, and the reason why you decided to invest in the first place.

Olive is here to help. Our intelligent platform will piece together option strategies to reach your goals while the straightforward monitoring and exit features will take the guesswork and emotions out of the process.





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