There is an old saying about life in general: “We all make mistakes.” This quote applies to investing as well. Fortunately, most errors are minor and easily fixed. Five of them, however, are so significant that avoiding them can add hundreds of thousands of dollars over your investment lifetime. Here they are:
Mistake #1: Never saving – It’s hard to believe, but many individuals never save or invest a penny! Excuses range from the foolish belief that someone or something else will do it for them (i.e. Social Security, inheritance, employer, etc.) to the naïve notion that the value of their personal residence will carry the day. Don’t kid yourself – start saving now!
Mistake #2: Saving later than sooner – As someone once said, “The road to hell is paved with good intentions.” So it is with starting the investment process. I’ll wait UNTIL I get that new job. I’ll wait UNTIL I get my raise in December. I’ll wait UNTIL I get my promotion. Remember this: compounding is an investor’s best friend. Wait “until” for too long, and you’ll sacrifice your greatest advantage. Time IS money!
Mistake #3: Fear of failure – Some investors are unnecessarily frightened by the prospect of failure…of loss. Every investor, even the most astute professional, has had his or her fair share of down years. Set realistic expectations and understand that you will have a down year every now and then. Be smart, use common sense, and work with a capable wealth manager, but don’t let fear keep you unnecessarily out of action.
Mistake #4: Lack of patience – As mentioned above, compounding is one of an investor’s best friends, and it takes time for compounding to do its thing…to work its magic. Investors need to practice patience. If you can’t do that, you’ll do poorly at investing…always buying and selling at the wrong times and for the wrong reasons.
Mistake #5 – Failing to diversify – Many investors listen to a friend’s tip or misunderstand a professional investor’s comment in the media and bet the farm…on one investment or one asset class or one asset sub-class or one country, etc. Diversification…not putting all of your eggs in one basket…is another one of those investment “best friends.” Not all investments do equally well all of the time or at the same time, so wisely spread out your investment choices in order to reduce your risk and perhaps increase your returns over time.
Get started today! If you need it, seek help from an experienced wealth manager. Let time works its magic for you. Diversify your holdings.