Mistakes in investment happen for several reasons. Often the investor is mislead by inaccurate information and marketing from companies seeking investors. Errors occur in judgments and many investors simply do not have a good understanding of the basic concepts of investing. Investing can be extremely complicated and there are misconceptions about how stocks react under different economic, political, and hysterical circumstances.
Plan, Plan and Plan! – Investments should always be made with an investment plan in mind. Investing without a goal inevitably leads to mistakes. Goals help establish time lines, investment length, risk tolerance, and future income. Knowing where you want to go in the future will help you make solid investments today.
Another benefit to having a plan is that it helps avoid the allure of trendy, “get rich instantly” speculations.
Allocation vs. Diversification. – Know the difference and know how each can be handled. Many people use diversification and allocation interchangeably however they do not refer to the same thing.
Asset allocation is when there is a division of your stock portfolio between equity stocks and income stocks. Diversification refers to minimizing risks to make sure the size of your portfolio does not become cloudy with too many varied investments.
Diversification and allocation are not used to protect stock portfolios in terms of avoiding market timing devices. Neither of those can be used with mutual funds or a single mutual fund. Diversification and allocation are best controlled through cost basis analysis.
Slow and Steady. – Many investors are inspired by boredom. Investors become sick of their “plan” and make uneducated, drastic, and usually financially devastating choices. This is especially true when investors do not see quick enough movement and growth in their stock portfolio.
Long term investing has a different meaning for the causal investor who is often scared into selling because of normal drops in stock prices. To truly benefit from your financial plan and portfolio you have to be patient.
Long term investing can take several years to turn a major profit. Find a company you believe in and that you feel will have long term growth and stick with them. Walmart, and Coke are great examples of companies which have a long history of marketability, stability, and growth over several years.
Research Twice, Buy Once, and Don’t Over Do It. – Research is a great tool for the causal investor, especially now with the world wide web which offers a great deal of research material at your fingertips. As an educated investor you need to be able to distinguish between true analysis and company marketing.
Additionally, new investors tend to over do it and get buried in too much research. Spending too much time reading and not enough time making decision is a major reason why new investors do not have substantial growth in their securities.
Instant Fix Does Not Exist. – To many people get involved with investing because they are seeking a way to make money right now. Unsuccessful investors are those who are looking for and taking short cuts.
They believe sensational marketing hype and invest in new products or services with companies that have no history of being successful.
This can single handedly destroy a portfolio by incorporating mutual funds, index funds, penny stocks, commodities, and iShares. Smart investors buy securities not products.
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