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Investing money can be instrumental in growing your net worth since investments allow you to earn extra funds without having to work for every dollar. When you open a brokerage account and invest, your money can work on your behalf to earn, which means there’s no real limit to how fast your wealth can grow.
Investing comes with a risk of loss, though. And you don’t want to end up reducing your net worth by making investing mistakes. Unfortunately, the upcoming year could be a time when the risk of investing errors goes up — so be sure to avoid these three big mistakes that could have an adverse impact on your wealth-building endeavors.
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1. Making investment decisions based on the current state of the market (or the economy)
Many experts are predicting a recession in the coming year. If a recession happens, the stock market could take a hit, and you could see your portfolio balance decline.
When you see your investment balance falling or you’re concerned about the state of the economy due to the country officially entering a period of economic downturn, you may be tempted to sell your current assets or stop investing.
Doing either would be a mistake. Selling during a downturn means locking in losses, while waiting for a recovery could enable you to get that money back and then some. Likewise, putting a pause on investing would mean giving up the chance to buy investments when they’re on sale due to unfavorable market conditions.
Don’t make either of these errors next year. If the economy goes south, hold on to the investments you’ve got and keep buying assets you want to hold for the long term.
2. Investing money you’ll need in the short-term
Although you should keep investing in 2023 even if the economy is in a recession, you definitely don’t want to invest any cash you might need within the next few years. This includes money meant for your emergency fund or for purchases you want to make within around the next two or three years.
You never want to invest money unless you can keep it in the market for the long term since you never can tell when a market crash will happen or how long a recovery could take. Investing cash you’ll need soon could mean you end up forced to sell at a bad time. And it’s especially important not to take this risk when going into a period of economic uncertainty.
3. Investing too little of your money
Finally, with prices going up on many goods and services, you may feel like you can’t afford to invest. But, the reality is, you can’t afford not to invest regularly each year throughout your lifetime. Doing so means you can grow a good-sized nest egg for your later years.
So don’t use a recession as an excuse not to invest. Unless you’re truly in dire straits — such as if you’ve lost your job or can’t afford basic necessities — try to find at least some cash to invest for your future.
Avoiding these three mistakes will help you ensure that you stay on track toward building wealth in 2023.
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