Until recently, I’ve had 1 or 2 investments in mutual funds. Actually, I got rid of one (a bond index fund) since it wasn’t in my best interest to hold. That left me with one index fund. That’s bad. Where’s the diversity?
Meanwhile, real estate and small-cap markets went through the roof. I made a huge mistake. I didn’t diversify my investments. Lesson learned.
Here are some common mistakes that investors (including me) can sometimes make. Avoid them at all costs.
1. Not having patience.
Don’t expect to double your money within the first two months. It’s very rare and unrealistic. Warren Buffett averages 23% annual returns on his investments. Don’t expect much more than that unless you are Warren Buffett.
2. Not tracking returns.
How much did your investments bring you? If you can’t answer this question, it means you’re not tracking your investments. You need to start paying attention to what your money is doing.
3. Relying on other people’s advice.
Don’t listen to Jim Cramer. Or at least do some research before investing in something he recommends. His investment recommendations are like everybody else’s: Hit or miss.
4. Under-diversifying (or Over-diversifying).
Don’t put all your eggs in one basket. If that investment decides to fall, you could lose your entire fortune. Put your money into a few investments. You can also be missing out on some gains if you put your money in too MANY things. What’s the right number? Don’t ask me. Find out what your risk tolerance is and do some research.
5. Conservative investing.
Don’t put all of your money into wimpy money market and bond investments. Yes they’re safe but you’ll miss out on some huge gains if you’re sheepish.
6. Investing late.
Jump in the water and start investing NOW. The sooner you start investing, the sooner you’ll see more money. Invest early, invest often.
7. Investing in something you don’t understand.
You wouldn’t buy tidal wave insurance if you lived in the middle of the country. Would you? It doesn’t make sense. Don’t put your money into something if you can’t comprehend why it’s a good investment.
8. Focusing on price.
Invest on things because of their value. Not because it looks cheap. Penny stocks will likely sink. Don’t waste your money if a company doesn’t have any value. Conversely, don’t dismiss a company because their stock looks expensive. It could still be a good deal.
9. Not paying off your credit card.
High gains on investing mean nothing if you got high-interest on your debt. Pay off any high-interest debt before investing any more of your money.
10. Forgetting about taxes and fees.
Did you know that funds with active trading accumulates a lot of capital gains taxes? Did you know that actively traded mutual funds have fees that could eat a lot from your overall return? If you don’t know any of the fees or tax implications of your investments, please take them into account before investing in something.
[Photo Credit: sgis]