As an investor, you know the mantra – “Buy low – sell high.” And that’s what you’ve been trying to do. That’s hard enough. Meanwhile you try not to make mistakes – to do things that are counterproductive, cost you money or hurt your bottom line.
Here’s a short list of some of the most common investing mistakes people make. Keep these in mind as you perform due diligence and grow your portfolio.
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Not Having A Plan
You might be surprised at how many people start investing without any sort of process in mind. You may not be surprised to learn many of them are unsuccessful. Here are some things that should be part of your plan – Concrete goals and objectives such as “accumulate $x by retirement age”; risk tolerance; benchmarks including how you will measure success; asset allocation by investment type; diversification within asset classes.
Failure To Research
If you were going to buy a television you would likely do some research before blindly buying the first thing you saw on the shelf. Same with stocks and other securities. Knowing nothing about the sector, industry or company is a good reason to stay away. Investing wisely demands research.
Wrong Time Horizon
Based on goals set a time horizon that makes sense. If you are saving for retirement, how long until you need the money? If it’s for college education for a child, your time horizon is likely less.
Forgetting To Rebalance
Your asset allocation will change as the market changes. Rebalance to get back to where you wanted to be. If your goals change, perhaps your asset allocation will change. Only then should you change the balance.
Thinking Margin Is Free Money
Margin is borrowed money – not a gift. Don’t overdo it. Monitor positions often and use margin sparingly. The risk is high and potential losses – like gains – can be high.
Trading On Tips
A stock-buying tip from some guy who knows a guy whose buddy works on the exchange is likely not a solid tip. Do your research and don’t rely on unfounded tips from strangers.
Buying Only On Price
If the price of a stock has fallen that does not mean it’s a good buy. It might keep falling. Fundamental analysis might reveal competition in the sector has increased, for example. Price is only one factor. Find out why the price has likely fallen.
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Investing and taxes are tied together since taxes affect your bottom line return. Know how taxes affect earnings and adjust accordingly. Become familiar with the term “tax loss harvesting” and use the process as appropriate.
The more you know, the better. Use FinanceBoards and WooTrader to increase the efficiency of your research and therefore - your knowledge. The information you need is all there, collected and collated and easy to compare.