There’s so much misinformation out there about investing it can easily become overwhelming. I want to tell you the major mistakes new and seasoned investors often make to the detriment of their bank account and how to avoid them.
- Stock Picking/Mutual Funds – It’s almost impossible to consistently pick winning stocks and mutual funds which is why there is a high turnover of the latest “top analyst” or “best mutual fund manager.” Purchase low cost index funds to be well diversified and build your portfolio. Slow and steady wins the race; this isn’t a get rich quick scheme.
- Market Timing – Trying to time the market is a poor strategy and nearly impossible. If you’re investing in the market, you shouldn’t plan to use the money in the near future so set your money to automatically invest every month and take advantage of dollar cost averaging.
- Frequent Trading – Buying and selling stocks or funds generates transaction fees. Additionally if you hold the investment for less than a year, you’ll be taxed at a higher rate. So save yourself some money and stress, just set it and forget it.
- Hiring an Investment Advisor – Financial advisors charge you a percentage of your investment regardless if you’re making any money. They sell you products that earn them a commission. You don’t need them.
- Reacting To The News – The media always tries to stimulate fear in the headlines about how many points the market moved or what the next latest stock is. Don’t make decisions based on the media. Create your long term investing plan and stick with it.
- Trying to Get Rich Quick – Penny stocks are typically promoted as part of a scam such as the “Pump and Dump”. They buy in and then hype it up for other buyers who purchase it and then sell, making themselves a nice little profit and leaving the victims with nothing. If it sounds too good to be true, it probably is!
- Not Paying Attention To Fees – Your investment returns can wither away if you’re not paying attention to fees such as transaction fees or mutual fund expense ratios. These can vary greatly depending on the company you invest with so do your research and don’t ignore them.
- Buying High and Selling Low – If you sell every time it seems like the stock market dips because you think it’s going to crash you’ll never make any money and you’ll just keep locking in losses. Ride out the waves; it’s natural for the market to go up and down over time.
- Investing Short Term Money – Make sure you aren’t investing money that you’ll need in the near future. The stock market fluctuates so if you need the money soon, it’s the wrong place to store it.
- Not Paying Attention to Taxes – Investing in tax-advantaged accounts can save you thousands of dollars over your lifespan. You typically won’t be able to access the money until retirement age, so make sure you understand the rules of each account type before diving in. Examples include Roth IRA and Traditional IRA.
- Not Investing Up to The 401k Match – If your employer offers a 401k and offers a matching contribution, it’s recommended to put at least the amount they will match in the account. Often times beyond that there are other investment vehicles that offer a better choice of funds or lower expense ratios.
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