Everyone wants a slice of the American Dream and with globalization, benefiting from the world’s largest economy is no longer just a dream.
Now Indians are investing in US markets from the comfort of their homes yet there are some common mistakes to avoid when investing in the US stock market that you should know before entering!
The US stock market offers significant opportunities for investors worldwide, from selected securities to exchange-traded funds across a variety of indices and themes.
However, before you invest in US equities, you need to know how to prevent the following US stock investing blunders.
While some will be similar to stock market investing blunders to avoid if you’re a newbie, others will be exclusive to supporting in the United States.
Ten mistakes to avoid when investing in the US stock market
1. Holding only equities
While it is natural to desire to invest in a few of the world’s most well-known companies, focusing solely on choosing specific equities is one of the most common mistakes to make when investing in the United States.
Your investing strategy should be customized to your risk tolerance and include a nice blend of equities and exchange-traded funds (ETFs). If you’re new to the stock market in the United States, you should begin with an ETF-only strategy.
2. Lack of investment goals
A lack of adequate investment goals is among the most prevalent blunders when investing in global stock markets. You must carefully craft your investment goals and use the most suitable financial tools to attain them.
3. Going with the trend, don’t
Please do not purchase a stock simply because it has come up in the press or because you believe you have already lost money due to a company’s surge and therefore cannot afford to lose any more. Remember, you’re investing in a company, not a stock.
4. Timing the market
Another classic stock-trading gaffe is attempting to time the market. It’s difficult to gauge the demand, and experienced investors frequently make mistakes.
According to an American Pension Fund Returns study, correct asset allocation accounts for roughly 94 percent of portfolio returns, not market timing or individual stock selection.
5. Ignoring tax liabilities
Keep in mind this flowchart
6. Not knowing forex rates
The exchange rate is essential when depositing Indian cash into your US brokerage account. Your bank will also charge you a foreign exchange conversion fee.
As a result, it’s best to go with a platform that has partnered with banks to offer better exchange rates and a reduced markup cost.
7. Violating LRS regulations
The LRS regulates how much money an Indian person can send abroad and for what purposes. An Indian cannot use margin to invest internationally, in speculative products, or trade-in FX pairs under the LRS.
8. Asset class allocation
The secret to a good investment portfolio is asset allocation. On the other hand, investors make the typical mistake of focusing on individual equities rather than doing adequate asset allocation.
9. Over diversification
When used correctly, diversification is an excellent risk management technique. When assets have various risk profiles and little correlation, it add value.
Over-diversifying, on the other hand, can be counterproductive. Adding US equities ETFs to a diverse US stock portfolio, for example, may well not make sense.
10. Being impatient
Long-term investing requires only 1% action and 99 percent patience. On the other hand, many investors lack patience and wind up constantly fiddling with their portfolios.
To maintain a disciplined attitude, you must look past short-term volatility and concerns and focus on the market’s long-term growth potential.
Morgan Housel, in his book “The Psychology of Money”, modifies a quote from the great Napoleon while talking about investing:
“A good definition of an investing genius is the man or woman who can do the average thing when all those around are going crazy.”
Keep the above mistakes and the quote in mind if you want to get the most out of your investment in the United States.
FAQs
What are some common mistakes to avoid when investing in the US stock market?
Here are some common mistakes to avoid when investing in the US stock market:
- Lack of investment goals and a time horizon
- Blindly following trends and investing randomly
- Violating LRS regulations and not consulting your CA in terms of taxes
- Over diversification and investing in multiple stocks
- Being impatient and over-monitoring the markets
What are 5 mistakes investors make?
- The most common mistakes that investors make are:
- An attempt to time the market and wait for the right time to invest,
- Try active trading
- Misunderstanding financial markers and performance details,
- Working alone or choosing the wrong investment advisor
- Not attempting to understand the tax dynamics and liabilities
What is the golden rule of investing?
The golden rule of investing is greater the risk, the greater the returns! A bonus rule is always to consult your financial advisor before investing your money in any scheme.
