9 vital tactics to avoid costly investment mistakesJune 8th, 2012 by Dan Woodruff, Certified Financial Planner with Woodruff Financial Planning
This post gives the basic details on how to avoid costly investment mistakes. To read the full version, download our free, easy to follow investment guide here.
- Decide what you want from your investments
Do you want growth or income? When do you plan to start spending the capital? How long do you wish to invest the money? If you understand what you want from your investments you can avoid costly investment mistakes.
- Understand your investments
Too few people spend time to try to understand the fundamental aspects of their investments. Overall, we recommend you should keep it simple – if you can’t explain your investments to a friend, then don’t do it! One of the most costly investment mistakes is to invest in something you don’t understand. It doesn’t matter if a financial adviser understands it – you should understand it too.
- Take emotion out of investment decisions
Probably the best thing to do to avoid making costly investment mistakes is to stop listening to all that free advice from friends, family and taxi drivers. they don’t have a stake in your success do they? What you really need to do is start to build a logical investment strategy built on fundamentals.
- Decide how much security you need
No-one can truly take risk out of investing, so be wary of anyone who tells you this is the case. Work out how much risk you want/need. Typical costly investment mistakes involve too much security through wanting to avoid all risk.
- Don’t put all your eggs in one basket
You should aim to diversify your investment portfolio so that you can smooth out the ups and downs of the market. If you place a bet on one horse and it doesn’t come in, then that could prove to be a very costly investment mistake.
- Allocate your assets
Too many people end up with an investment strategy that is all over the place when what you should really do is to build your investments around the allocation you want to take.
- Stop trying to time your entry to the market
You’ll never get this right so understand that investing is about how long you’re in the market not when you start.
- Beware the evil inflation
Most people ignore that the cost of living tends to increase. Investments should outperform inflation where possible unless there is a good reason why not. If your investments are currently in cash you should probably do something about this.
Many people become unhappy with their investments because they fail to review them as times change. You probably wouldn’t buy a car and never get it serviced, so the same should be true of your investment decisions.
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