As a financial professional, one of my main goals is to help the average individual avoid catastrophic mistakes that can occur when investing. There are always going to be risks taken when you invest your money, but you must be wise about how you invest to do everything you can to minimize those risks. It really bothers me when I see investors make a common investing mistake that was completely avoidable. You don’t have to be an investment guru to avoid the most common investing mistakes. Let’s take a look at five key ways to avoid these common missteps.
Understand Your Goals and Risk Tolerance Before Investing- Many investors make the mistake of simply learning how to invest in the stock market without first setting individual goal and understanding what kind of risk is appropriate for them. What usually happens in these cases? The investor typically is ready to bail out of the market at the first sign of a drop in their portfolio value. Understanding the risks that come with investing and aligning your investments with your risk tolerance is crucial.
Hold Yourself Accountable- I firmly believe that no matter how you choose to make your investments, you should hold yourself accountable. If you decide to hire a financial advisor, then you should be responsible for finding a solid professional. If you invest yourself, you must do your due diligence on each investment before pulling the trigger.
Set Reasonable Goals- Every time I hear an investor who has set goals that are virtually impossible to attain I worry that they will decide investing “isn’t for them” after failing to reach their goal. It is a good idea to set goals high, but don’t make the goal so lofty that you are destined for failure. It is important to note that your goals should change over time as your personal financial situation changes.
Invest in a 401k or IRA- If you aren’t investing money in an IRA or a 401k of some kind, you are making a huge mistake. I get frustrated every time I hear someone say “I can’t afford to invest in my 401k.” The truth is, you really cannot afford to miss out on this great investing opportunity that comes with tremendous tax advantages.
Be a Contrarian Sometimes- There isn’t a more famous investor than Warren Buffett, and one of his favorite quotes is, “Be greedy when others are fearful and fearful when others are greedy.” Why is this such great advice? It is simple to get caught up in the typical follow the pack mentality when investing, but it simply isn’t the way to make money. Don’t chase a momentum play or pile into an investment because everyone else says it is great, simply stick to your plan and look for a good investment value.
Investopedia “401k Plan Definition”
Brainy Quotes- “Warren Buffett Quotes”
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