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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.
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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)
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