It’s equally as important to learn about investment mistakes as it is to bone up on investment tips and tricks. Whether you’re looking for good investments for beginners or you’re a seasoned investor who has doubled your earnings in the past year, staying up-to-date with the latest investment missteps is key to solidifying your wealth management.
Mistake #1: Not Understanding What You’re Investing In
One of the biggest mistakes investors make is buying something they don’t understand. You may have insightful sources telling you about a “can’t-miss” investment opportunity; but if it sounds too good to be true, it probably is.
No matter the investment, there’s always a risk. It’s your responsibility to educate yourself about that risk. There are plenty of online resources you can turn to for valuable information on investing your money and assets.
Mistake #2: Not Investing Now
Investing is not a way for you to get rich overnight. If that’s your goal, your investment model is basically going to the casino or playing the lottery. True investing is a form of wealth management that requires time and patience. Since it’s a long game, the longer you go without investing, the more money you’re losing out on. Plus, if you invest now, you don’t have to invest so heavily later on in life to make up for the money you lost out on.
Mistake #3: Putting All of Your Eggs in the Same Basket
It cannot be stressed enough that you need to diversify your investments. Yet, we see investors put all of their eggs into only one or two investment baskets again and again. One of the most common mistakes investors make is putting the majority of their 401(k) funding into the company stock. Not only does this jeopardize your investment but also your future livelihood. Another mistake is putting all of your money in stocks. To truly diversify, it’s important to invest in stocks, bonds, and liquid assets like real estate. The more you diversify, the less the risk.
Mistake #4: Not Rolling Over Your 401(k) Plans
It’s tempting and it’s an epidemic. Many Americans choose to treat their 401(k) plans from old employers as a financial windfall. They liquidate the plans, and in doing so, they raise their tax liability along with incurring early withdrawal penalties and throwing away a significant amount of money in the process. Putting this common mistake into action for yourself is a sure way to disrupt your retirement planning. To avoid this, roll over your old 401(k) plan into your own IRA or into your new employer’s plan.
Mistake #5: Frequent Trading
Every time you make a trade, you rack up a commission fee. Over time, even small commission fees add up and eat away at your earnings. It also puts you at risk for greater losses. Even the most successful traders have difficulty timing their trades just right. Unless you’re a seasoned investor, your risk for getting the timing wrong becomes even greater. And for every time that you time a trade wrong, you end up losing out on money that could have easily been yours with no more a little patience.
But going out of your way to try and time the market is another mistake all in itself. The smarter method to follow is dollar cost averaging. With this method, you put a steady percentage of your income toward new investments. As you invest gradually, you spread out the cost of your investments over a longer period of time. This eliminates the need for trying to time the market.
Smart investing starts with education. That’s why it’s so important to speak with a financial advisor who takes a wholistic approach to wealth management. One who seeks to balance your needs for retirement planning, tax management, risk, growth, estate planning, investment planning and more. You don’t want a product pusher; you want an advisor who is with you for the long haul and has a genuine concern for your overall financial well-being. When it comes to investing, patience is nonnegotiable. Remember, slow and steady wins the (investing) race. To speak with a financial advisor about the best ways of investing your money, contact First United Bank & Trust.