The 7 Deadly Sins of Investment
You work hard for your money, and you want your money to work hard for you. We all need savings and investments to retire comfortably or to fall back on should unexpected circumstances arise. To that end, common investment vehicles include the stock market, mutual funds and retirement/superannuation accounts. But whichever investment vehicle you opt to employ, it pays to ensure that you are familiar with the mistakes commonly made by new investors.
- Not having an adequate plan. The saying goes that failing to plan is planning to fail, and in the case of your investments, you not only need a solid strategy as to how to invest your funds, but you need to have realistically mapped out the regular contributions you will be able to put into your investments. If your investments are not tailored to suit your age and situation and managed according to current market conditions, then you basically have a glorified savings account.
- Placing all of your eggs in one basket. This is not only a risky strategy, but one which is certain to limit your money’s growth potential over time. The reason you need to have a good combination of stocks, bonds and other investment options is that different investment vehicles will perform differently, depending on the economic conditions at the time. A diverse investment portfolio has a greater potential to endure an unpredictable economic climate.
- Too much emphasis on high-risk investments. The age old concept of the “get rich quick” scheme is a common pitfall that many people are aware of, yet continues to burn investors. A new investor must keep in mind at all times that their investments are a long term strategy, and as such, a potentially high short term gain is simply not worth pursuing when it is weighed up against the risk of losing your hard earned money.
- Overly conservative investing. Although this is of far lesser concern and it may even seem counter-intuitive at first, it is worth keeping in mind that a lack of market knowledge could lead an individual to be too conservative in their investments. This can ultimately result in a lack of sufficient returns to meet the investment goal.
- Investing with debt. Of fundamental importance when you are laying out your overall investment plan is to make an honest assessment of what you can afford to set aside for investment contributions. Put simply, your money must be free to invest. If you have already racked up credit card debts for example, and you are being charged upwards of 19% interest on this debt, then your first priority should be to pay off that debt. As your investments are unlikely to pay you a return anywhere near the interest on your debt, the elimination of debt ought to be the higher priority.
- Paying astronomical commission fees. Just as you would with any other product or service, you should take the time to shop around and compare prices before you invest, once you have decided upon a course of action. It pays to take into account an investment professional’s background and level of industry experience.
- Failing to seek the advice of a professional. Mastering finance and investment requires many years of industry experience and expert knowledge. In the same way that you would trust your health & well being to a medical professional, so to you should consult an investment professional when you are planning for your future and financial well being. As much as it can be useful to conduct your own research to gain a broad understanding of investment strategies, a qualified financial professional will take your own particular circumstances into account when making recommendations.
Provided that your investment strategy reflects a long term focus, has enough inbuilt diversity to withstand market volatility and is managed with the aid of experienced and professional advice, you should reap the benefits of a robust investment portfolio that will yield excellent returns on your hard earned income.