Investing Your Way to Wealth – or Poverty

Common Investment Mistakes to Avoid By getting into the habit of saving money every month, quarter, or year, you are taking a huge step in the direction of the future you want. As long as you keep adding to it, your nest egg will keep growing. Unfortunately, it doesn’t end there. If you are serious about retiring, buying a home, or sending your child off to college, you also need to put the money to work. Money that generates no revenue is in practice losing value, as inflation still applies. To the novice saver, the world of investments can be intimidating – even scary. The good, common-sense investments are tossed in with heaps of not so great ones, much like shredded carrots in a garden salad. And while some will keep ticking away, slowly building a huge snowball out of the little flake you put in, others will do the exact opposite, and wipe your account clean so that you have to start all over again. Below are a few common investment mistakes. By being aware of them, hopefully you can learn from them without making them, and save yourself many dollars in not-lost money. 1. Letting Your Emotions Rule It is not hard to see why investors get emotional. Big bucks, dreams, and lives are at stake, and it can get rough out there. The problem is, emotion-based investment decisions have a tendency to end in disaster. We all know the person who freaks out and sells when prices drop, only to get excited and start buying when prices are up, effectively practicing buy-high-sell-low, and then wondering why he or she keeps losing money. When you start to invest, you need to check your emotions at the door. 2. Putting All Your Eggs in One Basket You will have a hard time finding a financial planner, stockbroker or investment advisor who does not preach diversification as though it were the follow-up to The Secret. And if you do find one, you should probably run for the door. Because no matter how good an investment may look right now, no one can say for sure what the future holds. If every single dollar in your IRA is invested in one single fund and something goes wrong with that fund – well, there goes your retirement. Make sure you have backups – spread the risk and lower your exposure. 3. Losing Track of the Bigger Picture The shorter the time frame you use when looking at your investments, the scarier it gets. News releases, other investors’ emotions, and events will pull the price all over the place, and if you focus more on these things than on the reasons you own the security – that you believe the fundamentals are there for it to succeed in the long run – you will be tempted to sell for all the wrong reasons. You will also be tempted to buy into things for all the wrong reasons. Sure, you should revisit your portfolio every six to twelve months to see if the fundamentals are still there or if you need to make adjustments. But checking stock indexes every ten minutes while at work is hardly going to help you reach your investment dreams. 4. Ignoring the Impact of Fees and Commissions rnTrue, fees and commissions should not be paramount factors in your investment decisions. There are, however, times when these can eat up such a large portion of your investment revenue that the investment makes little sense. This is the reason I don’t recommend clients to buy into annuities. 5. Buying into Industries You Do Not Understand For the easily tempted investor, there are always great buys out there. Many times, these investors call me about biotech stocks and funds focused on these companies. They also tend to be partial to high tech, and business models that are new altogether (remember Sirius Satellite Radio?). The problem is, when you do not understand companies or industries, it is almost impossible to know what they are worth, when you should buy, and when you should sell. I’m not saying you should never buy into complicated industries and companies. But make sure you do it under the guidance of someone who knows them well. Knowledge is power, and in the world of investments, power is money.