Do you manage investments on your own? If so, are you unsure if you are in the proper investments? Do you feel that you are taking too much risk when it comes to your money? Do you pull your money in and out of the markets? Are you worried that your investments are not in harmony with your life goals? If the answer is yes to these questions, you might be falling prey to common investing mistakes. To improve the performance of your investments and to help you sleep better at nights, avoid the following pitfalls:
1. trading based on your Emotions
When it comes to investing, the emotions range from optimism - "I really believe that this stock will do well, it's time to buy", elation - "Wow, I can't believe how well this stock is performing - it's time to buy more!", nervousness - "Gosh, the stock is taking a dip - should I sell?", and fear - " I'm taking a loss, it's time to sell now and put my money in cash!" Relying on these emotions to guide your decision making may lead to poor decisions at the worst possible time.
2. Failing to FOLLOW a Disciplined Process
Hunches and tips rarely work out in the long run, but choosing and sticking to a proven investment strategy does. Following the latest news headlines too closely can adversely influence your view of investing. Keep in mind, that the more shocking the headlines, the better the news rating but not necessarily better investment decisions. Without a strong investment philosophy, you may unwittingly follow the advice of friends, neighbors, or family, especially if the “insight” promises a fast, easy return. But growing wealth has no shortcuts. Success requires a solid investment approach, a long-term perspective, and discipline to stay the course.
3. Avoiding REBALANCING a Portfolio
Hopefully when you developed your long term investment portfolio, you chose an asset allocation ( mix of cash, bonds, and stock) that was in line with your investment risk tolerance and will provide you with the expected rate of return you require to meet your goals. Over the course of time, the actual mix will move away from the original asset allocation as one portion of your investment portfolio increases in value while another loses value. Re-balancing sounds counter -intuitive because it means selling those "winners" and buying the "losers" in order to bring your asset allocation back in line to the original target.
4. investing in only a few COMPANIES
The old adage, ”Only invest in what you know," is good advice, but if you don't have experience with several types of financial assets, your portfolio probably isn't diverse enough to offer you very much stability. Diversification avoids exposing you to unnecessary risk of investment loss. By holding a globally diverse portfolio, you are then able to capture higher investment returns wherever it occurs.
5. Selling When the Market Gets rough
The market is down for the second week in a row, and the value of your portfolio is dropping with no end in site. Are you going to have the fortitude to stick it out or are you going to get out? If all of your eggs are in one basket than you probably should. If you are in a globally diversified portfolio and invested for the long-term than the answer is probably no. Only those people who are relying on stock investments for today's cash needs should be worried about short term drops in prices. Over the long term, markets will go up. You just need the discipline to look beyond today's headlines.
6. Trying to "time" the market
You have heard it a thousand times, "Buy low, sell high," but attempting to time the market by trying to predict the floor or ceiling price can cause you to drastically reduce your portfolio's rate of return. The key is to remain diversified and re-balance your portfolio regularly.
This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information.