Common Investment Mistakes - Part 7

 Many investors have issues with risk – either they want to take on too much of it, or they want to shy away from it entirely. Either scenario is bad news for your financial future, and it’s very important to learn to manage the idea and the reality of risk in your investments. Taking on too much risk can erase all of the gains in your portfolio in one quick downturn of the market. Just ask the many investors riding the upswing of the market back in 2000. Practically overnight they were dead in the water, left wondering what had happened. Chances are good that any time the market is experiencing unprecedented gains in new (or established) areas, there will be a regulatory ‘swinging of the pendulum’ to correct for the excess. Knowing when to participate in an upswing and when to bail out is the holy grail of the day trader’s life, and not something I would recommend most investors to attempt.On the other hand, refusing to take on any risk will allow inflation to consume any gains, eat into your principal, and thereby lower your overall purchasing power. No one will get ahead without allowing risk into their portfolio – think of the elderly person who will only buy cd’s or invest in money market accounts. Most of these individuals have their savings mapped out to support them for the rest of their lives and don’t really care about growth. While this low-to-no risk strategy might work for a handful of investors, for most of us it’s the equivalent of financial suicide – we need risk to outpace inflation and to grow our portfolios. Finding the middle ground when it comes to risk should be the goal of every investor. Try to learn the different ratings of stocks and mutual funds, and don’t forget to include some fixed income investments to round out the overall mix.  

Common Investment Mistakes - Part 6

A lack of adequate diversification is one of the most common investment mistakes made by novice and experienced investors alike. This is ironic because most successful investors and reputable financial advisors will tell you that this is the single most important rule of investing. It can be hard to know how to adequately diversify your investments, especially if you don’t have a lot of cash to work with. But no matter how much (or how little) you have, it’s still important to avoid putting all of your eggs in one basket. If you have a small amount to work with, just split it up – putting the same percent of the total into each of the investments you have selected. Another important component to diversification is working to make sure that you remain diversified. What I mean by this is simple – if one position does a little better than the others in one quarter, you will need to rebalance your portfolio. Portfolio rebalancing is the process of bringing the different assets back into the proper relationship following a significant change in one or more. To put it more simply, it is the act of returning your portfolio to the proper percentage mix of stocks, bonds and cash that you started out with in your personal financial plan.Finally, don’t get caught up in the excitement of one security that’s doing really well. While owning the stocks of successful companies can really help strengthen your portfolio, remember that reward usually comes with risk, and putting too much of your hard earned cash with one company can really take its toll.

Common Investment Mistakes - Part 5

 For many novice investors who try timing the market and fail, they immediately move on to stock selection. This investment ‘method’ is equally as risky as timing the market, but rather than focusing on getting in and out of stocks as before they rise and fall, stock selection focuses on trying to predict which stocks you think will outperform a certain index. While this may sound simple on the surface, and just like with timing the market some individuals do experience success with stock selection, it’s important to keep in mind that they are the exception – not the rule. The big problem with using stock selection as a tool to grow your portfolio is that even professional money managers cannot consistently have success at this. And they spend all of their time studying stocks and the market conditions that cause their value to rise and/or fall. When you stop to consider this, it’s easy to understand why the average Joe (or Jane) doesn’t have a chance to have lasting success with picking great stocks. You might have more luck if you put a bunch of names of stocks on a wall and throwing a dart, blindly buying what it lands on! All joking aside, investing in the S&P 500 is your best choice, also known as the Standard & Poor’s 500, this is an index of the largest 500 stocks in America and is the most commonly quoted gauge of the United States’ economic state. You can purchase shares of the index as an exchange traded fund (similar to a mutual fund) with the symbol SPY or IVV.

Common Investment Mistakes - Part 4

One of the worst things a new investor can try to do is to ‘time’ the market. By this, I am referring to the common practice of making frequent trades in order to get in when the market goes up and to get out when the market goes down. Even though study after study has shown that timing the market does not work for most people, hundreds – even thousands – of novice investors still try to do it each year and wind up broke and disappointed. The main problem with this strategy is that it is virtually impossible to predict what will happen in the future – and especially in the future of the stock market.
While it’s true that some individuals do make a killing at this, keep in mind that they are the extreme exception – NOT the rule! Your best bet for long term success is to set up a sensible portfolio with well thought out asset allocation and then stick to it for the long term. The most successful investors over time change only what they HAVE to change and only when they have good specific reasons WHY they are buying or selling an item in their portfolio.
One great tool to grow your assets that avoids timing the market entirely is dollar cost averaging. This tried and true technique is designed to reduce market risk through the systematic purchase of securities at pre-determined intervals and at pre-determined set amounts. Investors who employ this technique often find that they save themselves time, money and effort, so think about adding money to your positions whenever you can.

Common Investment Mistakes - Part 3

Even the most savvy investors can sometimes fall prey to the promises of ‘instant wealth’ that some investments ‘guarantee’. It can be so tempting to try to get rich quick or to invest in something that promises huge returns with little or no risk. That’s why I’m here to remind you of a fact that you are probably already aware of – if it seems too good to be true, it probably is! The next time you’re up late watching T.V. and see an infomercial that claims to know the secrets of buying real estate with no money down, or promises huge profits by investing in options and/or futures, remember that there is no secret easy way to make money that has been discovered by a lucky few.

In reality, real estate is often an extremely risky investment, and investments like options and futures are not only highly complex, but also carry their fair share of risk. In both cases, as with many get rich quick schemes, the mistakes that are typically made by a novice investor are unfortunately one of the reasons other more seasoned pros and large corporations are making money. For example, when a novice investor purchases a property hoping to ‘flip the house’ to make a huge profit, he or she will often be unable to do so within allotted the time frame and/or budget, and therefore default on the loan or are forced to part with the property at a loss – in both cases, either the bank or the new buyer will benefit from the novice investor’s mistake. This is not to say that real estate, options or futures are scams – they are all perfectly viable investment possibilities – IF you know what you’re doing. The strategy you should follow is actually quite simple - when in doubt, delay investing until you feel very confident that you know what you’re getting into.

Fatal error: Call to undefined function ujc_siderss() in /home/basedfin/public_html/wp-content/themes/presslance/right.php on line 21