10 Biggest Mistakes Investors Make
I COULD write a book on the investing mistakes that people blunder into. But here are the ten worst ones that lead to losing money in the stockmarket.
Make sure you avoid these traps and give yourself a Rich Future….
1. No Plan
This is No1 for a reason. You’ll never succeed without sitting down and thinking about what you want to achieve from your investments.
Are you trying to retire early? Fund your child’s education? Just build your wealth a bit?
Different goals need different plans.
You need to think about what kind of assets you want to invest in. What percentage of stocks, bonds, property and commodities you want in your portfolio.
Then there’s how much risk you are prepared to take in order to meet your objectives.
Once you have a sensible strategy in place, it’s vital you stick to the plan.
2. Not Thinking Long Term
If you are not prepared to invest regularly for at least ten years, you might as well forget it. This isn’t a get-rich-quick scheme, it’s get rich slowly.
The stockmarket can move like a rollercoaster over the course of a few months. But if you’ve got a decade-long outlook, the ride will be a lot smoother.
It doesn’t matter what happens in Year 1 or Year 2 if you don’t need the money until Year 10 or 11.
3. Not Spreading Risk
Don’t put all your eggs in one basket, that’s how the old saying goes. And it’s true with investing too.
Putting all your money into China, for example, is asking for trouble. If you do that, and that market tanks, you’ve had it.
Diversification across countries and asset classes is much more sensible.
4. Becoming a Gambler
Remember, you’re a smart investor, not a mug punter. So no rolling the dice by buying penny shares, day-trading or shorting shares.
Instead, purchase pieces of quality companies/countries, hold on to them and reap the benefits.
5. Trying to Time the Market
No one can know if the stockmarket is going up next or down. Not the so-called experts and certainly not you. Pretending otherwise can only end in tears.
Just continue making regular investments and don’t worry about it.
6. Not Doing Your Own Research
If you don’t do your homework, don’t be surprised if you fail this financial test. Learn about what you’re investing in, rather than blindly following the crowd. Remember, if you lose money, it’s your own fault.
7. Chasing Performance
Don’t try to beat the market because you’ll fail. It makes much more sense to be an average investor.
That means your returns will not be the best, but crucially, not the worst either.
If a fund you don’t hold was hot last year, resist the urge to pile in now. Most likely it will underperform.
8. Not Enough Index Funds
Buying shares in individual companies might bring out the collector in you, but it carries a lot more risk than low-cost index funds.
Active funds aren’t the way to go either because they charge more and most active fund managers underperform their benchmarks.
9. Listening to Financial Pundits
Now I’m a journalist, so listen to me when I tell you this… the “financial experts” on TV are just wheeled out to provide 30-second soundbites. Most are selling something or themselves. They either say “everything is amazing” or “everything is awful” because those are the only two types of stockmarket stories that the mainstream media loves.
Treat it like entertainment. Listening to the doomsayers will only worry you, and that will lead to…
10. Selling in Bad Times
Let’s end on an absolutely shocking mistake. As ace investor Warren Buffet famously said: “Rule No1 is never lose money. Rule No2 is never forget rule No1.”
Even if your investments are down, it’s only a paper loss. You’ve never actually lost any cash unless you sell when you’re in the red. So don’t panic. Take a breath, stick to the plan, keep making those regular investments and think long term.