As new investors, it can be hard to navigate the investment landscape if you’re not 100% sure how it works just yet. These common mistakes are repeat offenses: investors have been making them for years, and will probably continue making them. Avoiding these will greatly increase your chances for success in the investment world.
Investing Without a Plan
If you fail to plan, you plan to fail. “Investing is like anything else: the more planning you do before you get started the better the chances of success. Trying to build a portfolio without having a clear idea of what it is you want to achieve is like trying to build a house without a blueprint. Before you start sinking cash into stocks, bonds or other investments, you should take some to map out where you want to go.”
– Smart Asset
Investing is a long-term relationship. “Whether you’re investing a little or a lot, you want your investments to perform well and generate the best returns. This means developing a long-term strategy and sticking with it. If you’re constantly shifting your assets around in an effort to chase returns you’re not really giving your investments a chance to show you what they can do.”
– Smart Asset
Buying into Financial News Gimmicks
“There is almost nothing on financial news shows that can help you achieve your goals. Turn them off. There are few newsletters that can provide you with anything of value. Even if there were, how do you identify them in advance? Think about it - if anyone really had profitable stock tips, trading advice or a secret formula to make big bucks, would they blab it on TV or sell it to you for $49 per month? No - they'd keep their mouth shut, make their millions and not have to sell a newsletter to make a living.”
Being a Follower
What works for someone else, may not work for you. It’s best to do your research. “Many investors select asset classes, strategies, managers and funds based on recent strong performance. The feeling that "I'm missing out on great returns" has probably led to more bad investment decisions than any other single factor. If a particular asset class, strategy or fund has done extremely well for three or four years, we know one thing with certainty: We should have invested three or four years ago. Now, however, the particular cycle that led to this great performance may be nearing its end.”
Leaving your Investments on the Backburner
Don’t just invest and never check on what’s happening to your money. “If you’re not actively managing your portfolio, you could be doing yourself a serious financial disservice. That doesn’t mean you have to constantly monitor your investments 24/7 but you should be checking in regularly to evaluate how you’re doing. This includes routinely rebalancing your portfolio so that it reflects our overall investment goals.”
– Smart Asset
Rebalancing offers long-term rewards. “Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it forces you to sell the asset class that is performing well and buy more of your worst performing asset classes. This contrarian action is very difficult for many investors.”
The Alberta Securities Commission offers many resources to new investors, including classes new investors can take to learn more. They also provide a resource to find a broker who you can trust who will give you their best professional advice on whether the investments you are interested in based on your own research are suitable for you.
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