Thursday , 28 March 2024

Steer Clear of These 10 Major Investing Mistakes

Protect your money by steering clear of these 10 most dangerous investing mistakes. Words: 716

The article* below is from Investor Education Fund (www.getsmarteraboutmoney.ca), a non-profit organization founded by the Ontario Securities Commission that provides unbiased and independent financial tools to help you make better money decisions. GetSmarterAboutMoney.ca is IEF’s public educational website.

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Below are the top 10:

1. Not setting clear goals

  • What are you saving for and how much do you need?
  • Are you saving for retirement? A house? A car?
  • Will you need to use your money in five, 10 or 25 years?

You need to know these things before you invest. Then you can choose investments that best fit your situation. For instance, if you will need your money soon, you may want to choose safer investments. Why? You won’t have time to make up any losses.

2. Putting all your money in one type of investment

A mix of investments often works better. If one loses, another may gain. Remember, some businesses have cycles. Some may do well in the summer, some in winter. Some will react to world events, some may not. If you put all your money in a single investment (no matter how good it seems) and something goes wrong, you could lose all your money.

Some people avoid this mistake by investing in mutual funds or exchange-traded funds (ETFs). With these products, your money goes into a mix of investments and, over time, it’s your investment mix that most affects your results. That’s why many advisers tell investors to avoid putting more than 5-10% of their money in any one investment.

3. Investing in things you don’t understand

If you don’t understand how an investment provides a return to you, or how a business is organized, or how it makes money, you need to either learn more about it or consider avoiding it. Also make sure you understand what can make the price of an investment rise and fall. This will help you decide whether an investment is a good choice for you. To learn more, start by reading the annual report or prospectus.

4. Taking chances you can’t live with

Don’t invest in something that makes you lose sleep at night from worry. Most people are better with investments that they don’t need to watch every day. If you’re going to take chances, make sure you only invest money you can afford to lose.

5. Forgetting about your investing costs

There are always costs when you invest. In some cases, you pay fees. For instance, you pay sales fees when you buy and sell stocks. Mutual funds charge yearly fees to cover the cost of managing your money. These fees can vary from fund to fund so before you buy, make sure you understand and compare those costs. It will help you make better investment choices.

Also, don’t forget there can be a cost to playing it too safe when you invest. If you keep all your savings in a bank account, for instance, you won’t lose money but you also give up the chance to grow your money faster. That can cost you money in a different way.

6. Following hot tips or rumours

What looks like great information may just be noise. Make sure you know and trust the source. If you’re looking for advice, get it from an expert. That’s doing your homework.

7. Getting too comfortable with a good investment

Congratulations, you picked a winner! Don’t get too confident, though. Continue to monitor its profit and be prepared to drop it if necessary, no matter how well it’s done in the past. Keep trying new investments as well for a balanced mix – remember mistake #2?

8. Hanging on too long to a bad investment

It’s kind of like a bad relationship. You met, fell in love, and were oh-so-confident in the mutual benefits but things have soured – your investment just isn’t worth the cost anymore, and it’s time to let go. It’s okay to cry, but stop after one pint of ice cream.

9. Trying to rush results

Sometimes an investment will blossom quickly, but substantial growth usually takes time (especially with riskier investments). In any case, you should set a timeframe for how long you’re willing to hold out, and give it time.

10. Chasing success

Who seeks investments without profit? Obviously, you want to make money but you’ll burn yourself (and your wallet) out trying to follow the hot investment-du-jour every time a new one pops out of the woodwork. If you lack direction, talk to a professional.

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.theloop.ca/living/money/investment-guide/photo-gallery/-/p/5628/the-loop-gallery-money#ad-image-0 (© Copyright 2012, Investor Education Fund)

Disagree? Concur? Have your say on the subject via:

We’d like to know what you have to say.

Related Articles:

1. Apply the Bell Curve to Your Portfolio Asset Diversification – Here’s Why

80% of my investable income is in cash, precious metals and a small number of stocks. That might seem crazy, but the Pareto Principle, Zipf’s Law and the bell curve have convinced me that it’s a waste of time and money to get any more diversified. [Let me explain why that is the case.] Words: 396

2. What You Should Know About the “Dogs of the Dow” Investment Strategy

The “Dogs of the Dow” is a simple and effective strategy that has outperformed the Dow over the last 50 years and generates almost 4% in yield. Here’s how it works. Words: 486

3. Be Careful! Former Investment “Rules” Nolonger Work – Here’s Why

Investment “rules” that were relevant for a century are obsolete. They were based on a world where economies grew, people’s standard of living increased and outcomes tomorrow better than today. Arguably each of these conditions will not hold in the future but if they don’t, neither do the rules of thumb that guided investing last century.  These guiding principles developed and worked in a world that that no longer exists but applying them in the future will result in devastating financial outcomes. [Let me explain.] Words: 1261

4. Portfolio “Diversification” Can Kill Your Portfolio Returns – Here’s Why

Most investors don’t know anything more about diversification than you “shouldn’t put all your eggs in one basket” [but] spending some time trying to understand the ways you might be shooting yourself in the foot could seriously enhance your portfolio returns and stop catastrophic risk. [There are some advantages to diversification if you REALLY know what you are doing but the shortcomings can go a long way towards killing your portfolio returns. In this article we identify what they are and how best to avoid them.] Words: 1055

5. Warren Buffett: Diversification is Nothing More Than Protection Against Ignorance

NOT putting all your eggs in one basket makes intuitive sense to many investors. Indeed, evidence indicates that putting more eggs in your basket may actually crack your portfolio, not protect it. Words: 515

6. Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why

The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years  gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137

7. Frank Holmes: Diversification Among Commodities is Vital – Here’s Why

Diversification among natural resources is vital because there’s always an ebb and flow of commodities, both seasonal and cyclical and, as such, it is important to anticipate these global trends to know how to participate. [Let me explain.] Words: 528

8. Asset Allocation: How Sound is the Foundation of Your Portfolio Pyramid?

Regardless of the size of your financial pyramid, without a core-holding foundation, you are building it on sand. Core holdings are for protection, not for profit. They function as insurance against a catastrophe. [Let me explain.] Words: 754

9. Outliers Happen All Too Frequently So Get Prepared! Here’s How

By definition, rare events should seldom occur [and] applying that understanding to financial markets assumes that all market events follow a normal distribution or, in layman’s terms, a bell-shaped curve. More  specifically, the statistics say that 99.7% of all daily movements should fall within three standard deviations of the mean, no more. Well, guess  what? New research suggests that they clearly don’t follow such a pattern – that “unlikely” doesn’t mean “never”. [Let me expand on that.] Words: 1079; Charts: 1

10. Futures Investing: Should It Be In Your Future?

While there are a number of funds and stocks that can be used to gain exposure to commodities, futures investing has long been the most popular and direct means of establishing a position. [Let’s examine just what futures are, who should use futures and identify the various futures exchanges,] Words: 922

11. Commodity Trading: Which Option Options (if any) Belong in Your Portfolio?

Commodity investing has been around for decades, but it was only recently that their popularity has spread to the general public. It is now generally recommended that investors set aside anywhere from 5% to 10% of their capital for a commodity allocation, as these hard assets generally offer uncorrelated returns essential to diversification. While many investors utilize stocks, ETFs, and futures to obtain their commodity exposure, options contracts can often be a better alternative to not only your commodity holdings, but for the remainder of your portfolio as well [Let me tell you more about options and also why they might/should have a place in your portfolio]. Words: 995

12. What Are Warrants, Options & LEAPS?

Investors are always looking for ways to maximize their gains and warrants, options and LEAPS are a good way to do just that. These investment vehicles are very similar to each other except for issue of time. [Let me explain.] Words: 752

13.  Words of Wisdom From the Most Brilliant Investors Ever

There’s a bewildering amount of advice on how to invest…so it’s worthwhile, especially in today’s volatile markets, to take a look at what has actually worked, as opposed to what people claim works. We’ve collected some of the finest wisdom on markets from the most respected and successful investors, past and present. Words: 865

14. Understanding Systematic Risk, Modern Portfolio Theory and the Efficient Frontier

Risk inherent to the entire market or market segment is referred to as systematic risk and modern portfolio theory says that a blend of investments has the potential to increase overall return for a given level of risk, and/or decrease risk for a given return that the investor is trying to achieve. The expected risk/return relationship is known as the efficient frontier. [If you have a portfolio of investments then you need to fully understand what all this really means and how you can apply it to your portfolio makeup to enhance returns under any circumstances. Let me do just that.] Words: 1325

15. Should Stocks Be the Cornerstone of Your Portfolio?

There is a common notion that stocks, at least if held for a long-time, outperform other assets [and, as such,] should be the cornerstone of any long-term portfolio. [While that is indeed true,] it is best to focus first on how much you are able and willing to lose (i.e. what risk you are able and willing to bear) when determining the optimal allocation for your portfolio. [Only] then [should you] think about what potential investment returns you might be able to capture. [Let me explain.] Words: 1503

16. Motivated Stock Pickers CAN Beat the Market! Here’s How

What hope can there be for motivated stock pickers – no matter how much they sweat and toil – to outperform the low-cost index funds that simply mechanically track the market? Well – in spite of the absurd rise of the Nobel-acclaimed, and highly promoted, Efficient Market Hypothesis that claims that individual investors can’t beat the market – it turns out there is plenty! Just ask Warren Buffett, for one. [Let me explain.] Words: 1574

17. Don’t Invest in Mutual Funds! Here’s Why

The amount of evidence stacking up that…mutual funds…do not provide value for their investors is just staggering…While there are certainly signs that the public’s tolerance of excessive fees and executive pay is falling, the likelihood of significant structural change in the finance industry is still remote. Given such a backdrop the probability remains that investors in funds will, on average, continue to underperform their benchmarks. So what is an investor to do? [Read on!] Words: 830

18. Value Investing: The Practical Application of Benjamin Graham and Warren Buffett’s Principles

While the average amateur investor may be excellent in their own career field, it doesn’t mean they know what to invest in, or how to pick stocks. In fact being very good at your field can give you the false sense that whatever stocks you pick or your broker picks for you must be good, because after all, you picked them and you picked your broker — and you’re smart so, no doubt, those stock prices will go up. Unfortunately, the smart and talented stock-picking neophyte is not investing at all but speculating. Words: 924

19. Insights into the Bond Market and How to Trade Them

Although the stock market is the first place in which many people think to invest, the U.S. Treasury bond markets arguably have the greatest impact on the economy and are watched the world over. Unfortunately, just because they are influential, doesn’t make them any easier to understand, and they can be downright bewildering to the uninitiated. [This article provides you with an excellent understanding of what bonds are, the advantages of owning them and how to go about trading them.] Words: 1325

20. Recognize These 7 Emotions Before You Buy or Sell an Investment

Since there is such a wide range of emotions, it might be helpful for you to do a ‘gut-check’ before you actually buy or sell any type of security. Knowing how you “feel” about investing might turn out to be just as important as knowing what you “know.” Words: 737

21. You’ll Never have a 10-bagger if you Sell a Stock after a 2-bagger! Here’s when to Ride a Winner – or Sell

One of the hardest things for individual investors to do is to know when to sell a stock. Many times, you might sell simply because a stock has gone up and you’ve made some money. More often than not, though, this is not a great reason to sell [because, as mentioned in the title of this article,] you will never – ever – have a 10-bagger if you sell a stock after a 2-bagger. That being said, what things should one consider before selling? Words: 912

22. 10 Timeless Investment Rules to Survive This Stormy Stock Market

Rules may be meant to be broken, but with investing ignoring the rules can break you – especially now. Investment rules are tailor-made for tough times, allowing you to stick to a plan just when you need it most. Indeed, a rulebook is important in any market climate, but it tends to get tossed when stocks are soaring. That’s why sage investors warn people not to confuse a bull market with brains. Here are 10 rules to survive this stormy stock market. Words: 769

23. Don’t Invest in the Stock Market Without Heeding These “Rules of Trading”

I’m not going to candy coat it for you: making serious money in the stock market is a ton of hard work. It takes patience, savvy, and a certain level of market smarts – and the cold, hard truth is that if you don’t have them, the big boys will drain your portfolio dry. Unfortunately, those are the three areas that most retail investors need to work on the most. Otherwise, they will simply end up in a cat-and-mouse game where they are the mice. Don’t fool yourself for one second into believing that your “due diligence” can be done by watching a show or two on CNBC. It just doesn’t work that way but if there is one voice from the markets that should grab your attention every time you hear it, it belongs to Dennis Gartman, founder and author of The Gartman Letter. He’s sort of a guru’s guru. [Here is] a glimpse into how he views and trades the markets. Words: 106

VIX is the ticker symbol for the volatility index that the Chicago Board Options Exchange created to calculate the implied volatility of options on the S&P 500 index for the next 30 calendar days. The formal name of the VIX is the CBOE Volatility Index [and informally as the investor fear guage]. Below is some introductory material on the VIX offered up in a question and answer format: Words: 915

25. Here’s a Game Plan for the NEXT Time the Market Plunges

Sooner, rather than later, [excessive] volatility will break out again so it is important for investors to have a game plan in place for such a future event. [Below is just such a plan that I would like to share with you.] Words: 1469

26. What to Watch For When Considering Companies to Invest In

Investing in the stock market is hard enough. The last thing you need is to find yourself owning a company that has questionable accounting, disclosure or other policies. [Below is] a review of 5 things you should watch out for when investigating companies for a stock investment. Words: 740

27. Market -Timing Pays BIG Dividends for Income Investors – Here’s Why

Many income investors have been taught to believe that “market-timing” is anathema to their investment objectives and/or that it can’t be done successfully… I will argue that this piece of conventional wisdom is false – dangerously false. In a three-part series of essays, I will argue that market-timing needs to be incorporated as a fundamental component of income investing. I will demonstrate why market-timing is important, when it should be applied and how it should be implemented. [Read on!] Words: 1956

28. Yes, You Can Time the Market – Use These Trend Indicators

Remember, the trend is your friend and now you have an arsenal of such indicators to make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Words: 1579

29.  Ride the Market Waves With These 6 Momentum Indicators

It is hard to know what to buy or sell let alone just when to prudently do so. Thank goodness there are indicators available that provide information of stock and index movement of a more immediate nature to help you make such important decisions. This article describes the 6 most popular Momentum Indicators. If ever there was a “cut and save” investment advisory this is it! Words: 1234

30.  Here’s How to Time the Market!

There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974

31.  Understanding the Patterns, Trends, Indicators and Formations of Technical Analysis

Technical Analysis is the discipline of finding reliable patterns, trends, indicators and formations, mainly in price, for buying and selling assets…To a large degree, technical analysis is a self-fulfilling prophesy [in that] it is effectively an unofficial agreement amongst market participants to impose more order on what would otherwise be more random. The key is to understand which patterns, formations and indicators are widely adhered to, so as to become useful predictors of price action [and this article does just that. Let me explain.] Words: 470

32. The P/E Ratio: Its Strengths and Limitations

When it comes to valuing stocks, the price-to-earnings (P/E) ratio is the number one metric for investors that want an instant fix on what the market thinks of a company. [That being said], there are health warnings to heed if you don’t want to be left exposed by its limitations. [Let me explain.] Words: 1101

33. Don’t Invest in the Stock Market Without Reading This Article First

History has shown that investors who stick to disciplined, fundamental-focused strategies give themselves a good chance of beating the market over the long haul and James O’Shaughnessy has compiled data that stretches back to before the Great Depression, back-tested numerous strategies, and has come to some very intriguing conclusions. [Let me share some of them with you.] Words: 1325

34. Size Does Matter: A Look at Market Capitalization and What It Means for Investors

People choose certain stocks for many different reasons: business location; sector strength; product innovation, but some investors choose what to buy based on company size, or market capitalization [believing that size does matter. Yes,] understanding the difference between small-cap, medium-cap and large-cap companies is the first step to making the right choice. [Let me explain.] Words: 600

35. Extreme Investing: Do Leveraged ETFs Belong in Your Portfolio?

Some analysts and commentators are warning that this year (2012) could match or surpass the dire conditions experienced in 2008 with the promise of more turbulence from the Eurozone, further political wrangles over dealing with the U.S. budget deficit and a potential host of problems in emerging market countries such as a possible Chinese banking and real estate crash. [While you] should fear plummeting stock markets, ¦there are actually some interesting ways to play the downside or hedge your portfolio. [Let me explain.] Words: 990

36. I’m Hooked on Dividends! Here’s Why

Dividends aren’t just for Warren Buffett and retirees. Dividends have the power to support your goals of becoming independently wealthy. Here are 3 reasons why. Words: 586

37. Should Technical Analysis Be Ignored? We Think So? Here’s Why

The Web is crawling with technical analysis (TA), [and,] given its popularity, [begs the questions as to whether or not there] really is something to it. [Based on our research,] the short answer is no, not really, at least not in developed markets like the US or the UK.  Furthermore, most of the popular TA indicators that are bandied around are nonsense jargon and should be ignored as useless noise. [Let us explain our position.] Words: 2143

38. Here’s What You Need to Know About Short Selling a Stock

You can make money short selling a stock if its price goes down – but if its price goes up, your losses could be unlimited. [This short article outlines the theory behind short selling and what you need to know before doing so.] Words: 333

39. 6 Things to Know About Buying on Margin & 3 Risks of Doing So

Buying on margin can mean potentially higher returns – but it can also lead to large losses very fast. [This article outlines 6 things to know about buying on margin and 3 key risks of doing so.] Words: 848