Tuesday, 17 April 2012
Common Investing Mistakes
Investing for the long-term can be extremely beneficial to the person who takes advantage of it. But that doesn't mean that there aren't any pitfalls. Here are five common investing mistakes that you should avoid if you hope to fully benefit from a long-term investing approach.
Investments Are Too Conservative/RiskyA big mistake people make is that they pick investments which are too conservative or risky for their investment goals. For example, a person who invests too conservatively with quite a bit of time before retirement might find that they will need to save more than they planned to because their investments aren't appreciating enough. An investor who is nearing their financial goals who decides to put their money in more volatile investments will find that they are taking unnecessary risks with their portfolio.
If you want to find out how much risk you should be taking with your investments, take time to ask yourself three questions: "What am I investing for?", "How much time do I have before I need the money?", and "How much can I invest?" Then you might want to talk it over with an investment professional. Or look at our model portfolios.
Losing Interest in InvestingI know it's hard to imagine but there are actually some people who just aren't interested in investing. While you don't have to have a passion for investing to accumulate wealth in the long-term, it definitely helps. What I've found is that a lot of people lose interest in their investments after a couple years. When they first begin investing, they might tell themselves "I am going to invest $100 each month until I retire" but as time passes, they decide that they would rather spend that extra money each month. This is a big pitfall that you should avoid because that extra spending money could literally cost you hundreds of thousands of dollars in the long run.
Losing Sight of Your Financial GoalsThe 1990's had an incredible bull market that spawned a new type of investing...daytrading. This bull market led to great gains and has made quite a few people extremely wealthy, and the media has hyped high-flying stocks to get people's attention. The problem with this is that it has caused many people to forget their financial goals. With all this hype, people are investing in these hot stocks, even with college or retirement just around the corner.If you're nearing retirement or whatever it is you're saving for, don't give in to the hype. Instead, keep your mind on your goals, instead of ways to get rich quick.
Investing in What You Don't KnowYou may have heard of the popular investing concept "invest in what you know." Another way of saying this is "don't invest in what you don't know". A lot of people invest in companies that they know little or nothing about. This can hurt them because a situation might arise that they didn't know about.You can't expect to know everything about a certain stock but it does help to invest in what you know the most. Rather than investing in what you don't know, get out a piece of paper and write down the names of some companies that you do know about and then look up their stocks.
Not Educating YourselfThe previous four mistakes that investors make are important ones but this is probably the biggest mistake of all. Far too many people want to invest but they don't know enough about it. Rather than taking the time to learn what they can, they decide to try investing on their own first.It is extremely important to have a good understanding of how investing works before you actually start, especially if you plan on investing in stocks or any riskier investments. Getting experience in investing is important but it's wise to have at least a basic understanding before you decide to do so.From time to time, investors do make mistakes but these are five of the biggest mistakes that you should try to avoid. If you can do that then you will be tipping the odds in your favor when you are investing.