Have you ever made an investment decision that you ended up regretting? It doesn’t matter if you are a seasoned investor or a newbie, mistakes can happen. The key is to make sure that the mistake is minimized and corrected as soon as possible. Here are five common investing mistakes that people tend to make.
Investing without setting up a plan
Before you invest your hard-earned money, it’s important to have a defined plan in place. Identify what the key goals for the investment might be. Are you hoping to grow your wealth to purchase a new truck next year or are you looking to put money away for your children’s college education?
Depending on your objectives the way you invest can vary greatly. If you are investing for the long-term then you will most likely have a greater appetite for risk. However if you have a short-term horizon then you would want to be more conservative and take on less risk.
Investing without a plan in place is a lot like trying to assemble a new truck without having a blueprint. Planning is key in making sure your end goals are met.
Being too conservative
A frequent mistake made by new investors is being too conservative. It’s important to remember that inflation is typically around 3% per year, which means if you are only earning 1% or even 2% on your investment, you are actually losing money.
Pay close attention to your return compared to your goals. If you are saving for retirement and have a long time horizon then you probably should have a more aggressive allocation. That means more stocks and fewer bonds. Too conservative of a portfolio can easily cause you to fall short of your end goal.
Invest and leave it be
While you do not need to be checking your portfolios holdings multiple times a day, it is important to stay in the know about how things are performing. By keeping track of performance you can make changes that will give you a better chance to make the returns you desire.
Also Read: Three Tips for the Beginning Investor
You’re not diversified
When you are just getting started investing it can be a tempting idea to invest in a handful of stocks because they are performing well and have good management. That is only half the formula for success. It is critical that you have a diversified portfolio across not only different companies, but also different sectors. Instead of investing in just Walmart or a combination of other retailers, make sure you also include companies from other sectors liking financials, utilities, or technology. By being diversified you will protect your portfolio in case one of your holdings or a whole sector starts underperforming.
Paying high fees
We all want to earn a high return on our investments. We just don’t want those high returns to come with high fees as well. If your investments include mutual funds or EFT’s then make sure you pay close attention to the management fees that are charged each year. High fees can drastically cut into your return.