We all make mistakes. No big deal – until it comes to your hard-earned money. As long as you learn from those mistakes, right? Unfortunately, may of these mistakes are done repeatedly, to the detriment of your bank account, college savings and retirement savings. Increase your chances for success through awareness of what you may be doing wrong.
- You don’t have a plan. In order to know where you want to go, it’s important to have something in writing to guide you. Your priorities change over the years, of course, but knowing your end goal is key to ensuring you get there in the long run – despite the condition of the market at any given time. Your investment plan should incorporate the following:
- Goals and objectives
- The risks you’re willing to take
- How you measure your portfolio’s success
- Asset allocation
- Diversification within those asset classes
- You’re listening to the “experts” too much. Turn off the financial news shows. Hit delete on those newsletters. Shut off the TV ads touting professional advice or workshops for cheap money. If anyone knew the secret to investments, they wouldn’t be giving it away for free on TV. Instead, spend your time speaking to your financial advisor and doing your own exhaustive research when it comes to creating and applying your own unique investment plan.
- You’re chasing performances. That stock that’s been doing phenomenally for the past three years isn’t necessarily something you should jump on now. It’s had its time. Spend your efforts on finding the next thing that will explode, and get in before it does so. Many investors mistakenly choose those strategies and funds based on recent excellent performance, feeling they’re missing out on those awesome returns. However, the cycle is likely coming to a close by that point. Move on.
- You’re trying to time the market. Since the dawn of time – er, well, the stock market – people have been trying to time the market with varying success. Overall, market timing just doesn’t work. Yes, the market is volatile and yes, it can be scary, but most experts recommend riding the wave, with the risk of being out far greater than the risk of being in, says Business Insider.
- You’re trading constantly. Day traders buy and sell stocks quickly over the course of a day, often times multiple times in a day. They are essentially trying to beat the market at its own game, when they should be playing the game for the long term. There’s always a cost to trading frequently, and, just like in the casino, the house always comes out on top in the end. If you’re trading frequently, you’re paying the house, AKA, your broker, plus you’re being taxed on your winnings, or in this case, profits. You may win once, but the house will bet you’ll be at it again and again in the future.
Whenever you work closely with a broker, you should have a securities fraud lawyer behind you.