Articles: Don’t make the same investment mistakes
We all make mistakes, but some of them turn out to be worse than others. For instance, the types of errors you might commit as an investor could haunt you for years, dramatically affecting your lifestyle.
Simple advice: Don’t keep making the same investment mistakes over and over again.
Of course, that is easier said than done. To help you out, here are six tips for investors in the equities markets.
- Show some patience. You cannot expect”instant gratification” whenever you make an investment. Adopt a view of the long term, and try to stay consistent with your overall plan despite any ups and downs in the short term. Recognize that you may have to hold assets for a period of time for the best results.
- Face up to reality. Don’t ignore what the numbers are telling you. For instance, if you have a favorite stock that is consistently underperforming, you should not continue to “throw good money after bad.” Take your lumps and move on. Similarly, do not allow emotion to rule the stocks you decide to keep for the future.
- Remain diversified. On the other hand, no matter what the numbers say, you should not sink all your dollars into a single investment. Although diversification offers no guarantee of success in a declining market, it remains a viable way of reducing overall investment risk. Build a balanced portfolio with the assistance of your investment advisers.
- Do not overemphasize past performance. Are you familiar with the boilerplate language found in most investment-related documents? It states that, “Past performance is no guarantee of future results” (or something to that effect). You probably do not pay much attention to it, but it is true. Instead of relying strictly on past performance, evaluate current and future prospects.
- Factor in taxes. One important thing to remember as an investor is that it is how much you keep, not how much you earn, that really matters over the long term. Depending on the type of investment, and the timing of gains and losses, taxes may dilute a significant portion of your earnings. This is especially true in 2013 now that the top rate has been raised for upper-income investors and a new 3.8% Medicare surtax is a concern.
- Stay away from “market timing.” Typically, market timing is based on acquiring stock when you think it will go up and selling stock when you think it will go down. It may work sometimes, but it can also backfire if your expectations are not met. It makes more sense to build a balanced portfolio based on your particular needs and tolerance for risk.