Few of us can truly say we have invested without making at least one of these investing mistakes along the way. Does “If I knew then what I know now…” sound familiar? With hindsight we would have done things differently so it’s good to share what some of the pitfalls are.
1. One of the single biggest investing mistakes you can make is not investing at all -- either that or to delaying investing until later. While not investing at all or waiting until later are big mistakes, investing before you are in the financial position to do so is another way to get it wrong. Firstly, get your financial situation in order before you start investing. Clean up any bad credit, pay off high interest loans and credit cards, and put away at least three months of living expenses in savings. Only then will you be in a position to start letting your money work for you.
2. Using credit cards is the reverse to investing. Interest rates are high and this makes it harder to repay with the high interest payments adding to your balance. Do not invest until you have paid off your credit card.
3. Avoid the temptation of the ‘hot’ investment tips that are supposed to make you get rich quickly. Temptation can be a scary thing and the temptation to run to the smoking hot and fashionable investment of the week is extremely high, so high in fact that many investors take to it like a month to a flame. If you don’t want to get burned, avoid ‘hot’ investment tips from your friends and use discipline as your number one investment strategy. If it sounds too good to be true, it probably is.
4. Not allowing for market cycles and then getting panicked. As humans we are affected by optimism and pessimism, fear and greed. These emotions lead us to make irrational decisions about our money and sell when we should be buying -- ‘invest in gloom, sell in boom’. If you are investing for the long term ignore the cycles.
5. If you are investing for short term goals, such as buying a home there are certain investments you should avoid. Those that are affected by market cycles are one of them. This shows the importance of setting money goals and matching your investment to those goals.
6. Don’t put all of your eggs into one basket. Invest in various types of investments for a diversified portfolio. Pick your investments carefully and understand what you are investing your money in. If an investment is too complicated to make sense to you it may be best to avoid it.
7. A common mistake that many make is thinking that their investments in collectibles will really pay off one day. Your dusty collection of old bottles or your book collection may one day bring you some money but it’s unlikely. No doubt they will have brought you pleasure over time but don’t count on them being your savior for your retirement funding.
In these scary times it is even more important to be vigilant and follow a strategy. Don’t forsake the strategy that you put in place just because markets have gone down. Use this time to make the most of buying low and keep focused on the long term. Learn from your past investing mistakes and don’t let fear make you repeat them.
Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. In her role as Financial Planner Lyn has helped many achieve the lifestyle of their choice. She is dedicated to helping create financial awareness. For more articles by Lyn please visit SoundFinance