5 Common Investment Mistakes to Avoid by All Means

5 Common Investment Mistakes to Avoid by All Means
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Like many others, you’ve probably decided that the year 2015 is the year you’ll save more money and focus more on preparing for the future financially. Saving more, however, is just the start. The next step to financial freedom is to know where you can invest your savings that will give you substantial profits for long term. This is one of the most common concerns people always bring up when it comes to savings and investing. To help you get started and kick off your investment goals, let’s first look at the five investment mistakes you should avoid committing by all means.

Do not be overly conservative

Putting your savings on a safe and a secure savings account then adding to it automatically on a monthly basis may seem like a good idea. That’s true if you’re just starting to build your emergency fund. But it doesn’t make sense if you’re hoping to make the most of your money. The only way to earn high profits from your savings is if you risk a little and invest on highly profitable investment mediums such as mutual funds and stocks.

When you’re too afraid to risk and invest your money on other investment mediums, you’re still actually subjecting yourself to two other kinds of risk. One has something to do with your money not being able to reach it profit-earning potential. In fact, you are actually losing money if you’re sticking with conservative savings accounts when inflation is taken into consideration.

Another risk you’re taking by being too overly conservative is putting your retirement fund in danger. Because you’re not earning enough profit to offset inflation, it follows that you may have bigger money in the bank but it won’t buy you much 30 or 40 years from now.

Do not put most of your savings in one stock

Putting most or all of your money in one stock is a big no-no.Having too much of your money in one stock can be dangerous financially because you may lose it all when the stock market fails. Keep in mind that there is no market more volatile than the stock market. As much as you want to keep that one stock inheritance you received from your parents and you don’t want to bother with the taxes you need to pay if you sell it, you have to do it anyway. The rule of thumb in stock investing is to avoid putting all your eggs in one basket.

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Do not get hung up with past performance

When the stock market is doing well and you’ve been reaping high profits, there’s always that tendency to be a bit more aggressive. After all, who wouldn’t want to earn more money, right? This mindset of getting hung up on past performance, however, may get you in big trouble if the stock market declines. While we can’t predict how the stock market will fare, it is safe to remember that investments typically go through cycles. Your goal is to buy low and sell high and not the other way around.

Even if that one stock investment or mutual fund did well in the past, there is not guarantee that it will continue to do so in the future. Always inject enough dose of investment street-smart to your financial decisions to make sure your many is safe but also earning a substantial amount of profit.

Do not obsess with trying to time the market

It’s true that the stock market will eventually decline. Remember that investments go through cycles. You can’t predict when it will happen but you can prepare for it by not obsessing on timing the market. Sometimes it takes years for the market to decline, other times it happens quickly and you may lose every return you’ve been expecting.

Rather than time the market or listen to so called gurus, you are better off believing with what’s been proven a long time ago. The stock market is volatile and unpredictable short term but it does grow long term.

Do not hire investment experts with high fees

When you’re not completely knowledgeable about how the stock market works, hiring an investment management expert may seem like the best way to go. Sometimes, it does help but most of the time, you’re just going to end up paying excessive fees that you should have added to your investment instead. They may call themselves experts but that doesn’t mean that they know how to pick the better funds.

We go back to the fact that the stock market is unpredictable and funds do not perform well all the time. They may get it right occasionally but it is not a guarantee that they can pull it off all the time.

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