The Top 7 Investing Mistakes to Avoid
The Top 7 Mistakes Investors Make
Investing smartly can increase the likelihood of a prosperous and secure financial future. The problem? Many make costly investing mistakes — and often, repeat the same missteps, which prevents their wealth from growing as much as it could.
Often, such errors can be avoided by following the guidance of a knowledgeable financial advisor with advanced degrees and training in the field. In fact, there is a reason that such professionals are in high demand, many people don’t know or understand the intricacies of investing. Simply being aware of the most common investing mistakes, though, can go a long way toward keeping them from torpedoing your investment goals, and help you grow your portfolio to meet your goals — and beyond.
Avoid these top 7 investing mistakes and you’ll become be on the road to achieve financial security.
Mistake Number #1: Trading Too Much
If you find yourself obsessively watching the market, or making trades a few days a week based on what the TV pundits or your favorite blogger is recommending, there’s a good chance you are trading too much. While you don’t want to be caught with your proverbial pants down if a particular stock tanks, you also don’t want to be trading so often that you never see any real gains. Monitor trends instead of minute-to-minute results, and do your research before making buying and selling decisions. And remember: Trades come with fees, so you could be negating any gains.
Mistake #2: Following the Crowd
Remember what your mom used to say? “If all of your friends jumped off a bridge, would you?” The same advice applies to investing, too. Just because a stock is hot, or a sector is trending, doesn’t mean it’s right for you. That “hot” stock could be ice cold in two weeks, and you’ll be counting your losses. Make investment decisions based on your goals and your research, not what the crowd is doing.
Mistake #3: Trying to Beat the Market
Anyone who tells you that they have a “guaranteed” way to beat the market and always realize big returns is ether lying or doing something illegal. That said, if you are willing to take big risks, it is possible to earn a return greater than that of the S & P 500, but the problem with that is that with big risks comes the possibility of big losses. A better approach is to make decisions that are in line with your goals, not an attempt to beat the market.
Mistake #4: Freaking Out Over Market Fluctuations
If there is one thing you must understand about the stock market, it’s that it will go up and it will go down. How much the financial markets fluctuate depends on several factors, but it will go up and down. Just because it drops precipitously one day doesn’t mean that you are doomed and that you need to sell all of your underperforming stock.
In 2009, when the Dow Jones Industrial Average index dropped to around 7,000 points, many investors pulled out. What happened to those who remained patient and rode out the storm? They’ve recouped their losses thanks to more than a 10,000-point gain in six years. Again, evaluate the overall trends of the market, and don’t make decisions based on natural fluctuations.
>>>>Read this classic; Investing Rule #1-Know Thyself
Mistake #5: Expecting to Get Rich Quickly
Speaking of being patient, investing in the market is not a “get rich quick” game. Sure, you might see some larger than normal returns on occasion, but overall, a long-term approach will serve you better. You will take fewer risks, and benefit from the gains the market makes over time while withstanding the drops.
Mistake #6. Not Diversifying Investments
It’s the mantra of nearly every financial advisor: Don’t put all of your eggs in one basket. Yet so many investors do just that, putting significant portions of their money into one single type of investment, or worse, a single company.
Consider this: Do you want 80% (or more) of your financial future to hinge on your company’s performance on the stock market? If you have most of your investments in company stock, that’s what you are doing. Your financial advisor can help you develop an appropriate investment mix.
>>>>>Read more: Diversification Strategy-How to Figure Out My Risk Tolerance
Mistake #7: Not Paying Attention to Fees
Your money doesn’t manage itself, and there are costs associated with investing. However, if you lose sight of the fees you’re paying for making trades, managing your account, etc., you could be losing thousands of dollars over the life of your portfolio. Not paying attention to fees may be one of the greatest investing mistakes. Keep track of what you are paying, and if costs seem to be getting out of hand, seek alternatives.
For those do it yourselfers, investing in diversified, low cost index funds will keep your investing costs low and give your hard earned money more of a chance to grow.
While these mistakes are avoidable, they are common. Again, an experienced investment manager may help inexperienced or unsure investors make smart decisions, but knowing what not to do can keep your wealth secure.
This post is featured on behalf of Michaela Kajiwara.