The 3 biggest mistakes investors make today and how to avoid them
The important thing is to make a smart decision with your investments and stay on track for your financial goals.
Being a successful investor it’s more than just predicting the markets and choosing the best investment deals. Here is an advice how to avoid 3 huge financial mistakes that investors usually do.
Whether rich or poor market folly does not discriminate. A win by not losing is often the least stressful path to financial independence.
Many novice investors often think being a successful investor is just about picking the “best” investments and maybe even timing the market perfectly. Realistically investing is about making a smart decision and avoiding making the big mistakes that can drag down you long term returns.
Basic financial advice to live by:
Live within your means, pay yourself first and put money away monthly, use an appropriate well-balanced portfolio, rebalance annually, otherwise leave it alone and watch the account values grow.
I may have lost you on the last sentence. But that doesn’t stop many people from tinkering with their investments way more than they need to be. You may also find emotions leading you to sell when you should be buying, and buying when you should be selling. Common sense doesn’t always win out when it comes to money, especially when the times are great, and even more so when the time are terrible.
The more difficult and complicated you try to make your investments and financial plan the more trouble you risk running into. Working towards you financial goals isn’t easy, but it doesn’t have to be difficult either.
Three big mistakes that threaten to throw people off their road map to financial independence:
Trying to time the market:
People, in theory, know not to try and time the market, yet this seems to be the topic I get questioned about the most. No one can time the market consistently. Forecasts are like weather predictions, just trying to tell the future. Have you even watched the weather man say zero percent chance of rain, yet you seem to be getting wet?
You have no control over what the market will do today, or in the next few months or even years. But if you are putting money away monthly you will often get to buy some more shares on sale. You control and what you invest in, and how you invest in it.
Freaking out when the market moves up or down:
This can go either way. “OMG I don’t want to miss out the market is going up so fast!” Or “WTF Stock X dropped big today, the world is ending”. You don’t have to be the smartest person in the room to do well with investing, you just have to avoid some of the mistakes other people are making. At this point, the biggest mistakes people have made in the last decade (and are still making) is panicking from/during/after 2008. Fear from the crash has kept many people from investing at all, let alone saving the right amounts to meet their specific financial goals.
Underestimating your emotions when investing:
When the market is hot, everything thinks they can’t lose. When you feel you can’t lose it becomes much easier to pile on the risk, which increases the odds of your losing big. When the market is going down, people freak out. It happens, we know it happens.
The problem is when you think you can handle the volatility that may come with investments that are more aggressive and more likely to give you a more violent roller coaster ride than you want. Talking about a 10% price drop is one thing, ignoring it is another. I’ve been helping people make smart financial decisions for over a decade some of my long term clients who used to get nervous about their investments wondering if the sun will ever come up again after sunset, now they seem to take all the daily ups and downs in stride.
I believe a truly diversified well-managed risk-based portfolio with meaningful contributions is the best way to build your wealth up over the long term. Whether the market is great or crappy this or next year really doesn’t matter that much in the big picture, the important thing is to make a smart decision with your investments and stay on track for your financial goals. If you don’t think you can do it alone, don’t feel bad most people can’t or won’t. Work with a trusted Certified Financial Planner to help craft your financial plan and investment strategy. And let them deal with all the fun stress that goes with it.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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