Financial Hour: 9 Common Investment Mistakes You Should Avoid

9 Common Investment Mistakes You Should Avoid

Investing is at best a risky proposition and sometimes even the best investment ideas don’t work out. Nothing guarantees investment success. However, avoiding these 9 mistakes may help improve your investing outcomes.

• Inability to Take a Loss and Move On
  • It’s difficult for many investors to sell an investment at a loss. Often they prefer to wait until the investment at least gets back to break-even level.
  • This may be part of our competitive nature. Investing is not a competitive sport, leave that for our Olympians.
  • When reviewing your investments ask yourself “Would I buy this holding today?”
• Not Selling Winners
  • Many investors struggle with selling highly appreciated holdings.
  • There is always the risk that you’ll sell and the price will keep going up. But there is also the risk of not selling and having the price drop.
  • Sometimes it’s best to protect your gains and sell while you’re ahead. Or at least consider selling a portion of the holding.
• Trying to Time the Market
  • It’s almost impossible to predict when the market will rise and fall.
  • Even if the stock market is following a general trend, there will be up and down trading days.
  • Trying to buy and sell based on those daily fluctuations is difficult.
  • While there are professional traders who do this every day, for most of us this is a losing proposition.
• Investing Without a Plan
  • When you take a road trip you generally have a map to help guide you.
  • Investing is a means to an end, a road map to achieve your goals such as funding your retirement or providing a college education for your children.
  • Without a financial plan, how will you know how much you need to achieve your goals? How much risk should you take? What types of returns do you need? Are you on track?
  • Investing without a plan is essentially like hopping in the car without any idea where you are going.
• Worrying too Much About Taxes
  • Taxes can consume a significant portion of your investment gains for holding in a taxable account.
  • While nobody wants to pay more tax than needed, it may be better to pay taxes on a gain than deal with a loss.
• Not Paying Attention to Your Investments
  • This isn’t to say you should be making daily, weekly, or monthly changes to your holdings.
  • But, knowing your investments, and evaluating and monitoring on a periodic basis is important.
• Failure to Rebalance Your Holdings
  • This goes hand in hand with having a financial plan.
  • Ideally, you have an investment that will automatically rebalance.
• Assuming Recent Events will Continue into the Future
  • The first 15+ years of this century have been tough on investors.
    • The market tumbled during 2000-2002 and then again in 2008-2009.
  • There is always something going on in the media that will instill fear into many investors.
    • Brexit, Elections, The “End of the World”
  • However, this fear and the assumption that recent events will continue into the future may be keeping you from investing the way you need to in order to achieve your goals.
  • While being aware of recent events is OK, don’t let them paralyze you.
• Building a Collection of Investments Instead of a Well-Crafted Portfolio
  • Owning a little bit of everything in your portfolio can be good. Just make sure that is actually what you are doing.
  • Great football teams have a better chance of winning when everyone embraces and executes their role in the game.
  • Having each investment inside your portfolio fulfilling their role can help improve your investment success.

*Asset allocation and diversification strategies do not assure profit or protect against loss.