8 Costly Investment Mistakes to Avoid
You've diligently saved your money and now it's time to invest it. You have choices to make; but they're not necessarily easy choices, especially at first.
There’s a lot to learn about investing. But the risk is that you could lose some of that money educating yourself.
How can you avoid making that kind of costly mistake? One of the quick ways to get your bearings is to learn what not to do.
Top investing mistakes you can avoid
Investing advice varies and it can be important to understand mistakes investors make and how to avoid them. Here are eight of the worst investment mistakes to watch out for:
- Bandwagon investing advice
Dating back to the 17th century tulip-bulb mania, there have been popular investment crazes that really can only be described as mass hysteria. Whether it is tulip bulbs or Bitcoins, the louder the hype, the more questions you should ask before investing.
- Letting CDs roll over and play dead
Too often, people just let their CDs renew automatically. This is an especially bad approach when CD rates are low. Every time you have a CD up for renewal, make two decisions: what length of term now suits your needs and the rate environment, and which bank offers the best CD rates at that length. Research rate offers from multiple banks and consciously renew or move your CD.
- Investing advice: volatility vs. risk
Beta is an investment statistic commonly used to measure the riskiness of individual stocks and stock funds. When considering how to avoid losing money on investments, some investing advice focuses on beta but it is not especially relevant to determine whether or not to invest in stocks. Beta is based on quarterly price fluctuations, but your actual investment risk is the possibility for lasting losses, not short-term changes.
- Defining risk too narrowly
The risk of losing money is just one form of risk. As savings account rates have demonstrated in recent years, another risk is having returns dwindle drastically. Investing conservatively is not necessarily the same as entirely avoiding risk. One of the worst investment mistakes is to view risk myopically.
- Shopping cart investing advice
An investment portfolio should be made up of coordinated parts functioning within a clearly-defined investment plan. The reality is that people tend to pick up investments here and there when they happen to come across something appealing. This is like going grocery shopping without a list -- the stuff that catches your eye and gets thrown into your cart is not necessarily the stuff you need.
- Paying excessive fees
The paradox is that the investment business is both extremely competitive but also prone to high fees. Be cautious about investment products with a sales load. Paying to get into or out of an investment can inhibit your flexibility and add an unnecessary layer of fees.
- Failure to compare investments
When it comes to basic savings accounts, people too often just accept whatever their current bank is offering, even though the best bank rates are several times higher than the national average.
- A high-water-mark mentality
Rationally, most investors know that stocks can go up and down in value, but there is a psychological tendency to assume each high water market is the new normal. The problem with this is that, as was common in the 1990s, it can leave people to overestimate their nest eggs and slack off on further saving.
Viewing this list as a whole, perhaps the strongest message is that there are common investment mistakes that people make every day -- and there are several others not on this list. The best solution is to be disciplined about your investment decisions and give them the time they deserve. After all, when you are investing for the long haul, there is no reason to feel rushed into a short-term decision.
More resources for investors:
To learn about portfolio re-balancing techniques for different age groups, read: Why you need to re-balance your investments today.
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