“When you make a mistake, don’t look back at it long. Take the reason of the thing into your mind and then look forward. Mistakes are lessons of wisdom. The past cannot be changed. The future is yet in your power.”-Hugh White”
One of the biggest fears that we all face is the fear of making a mistake. This is even more evident in the investing world, where one wrong investment decision can prove costly and wipe out an investor’s hard-earned money.
I have heard many sad stories of investments gone awry – people who went into massive debt because of an ill-conceived business idea; trusted companies that promised high returns and disappeared into thin air; rented real estate that turned into a nightmare due to trouble with tenants.
However, most mistakes that are made in investing are not quite so dramatic. Every day, average investors make very simple errors in judgment that can have a negative effect on their investment plans.
Here are five common investing mistakes that can be easily avoided if you are aware of them:
1. Mistake #1: Not Setting Investment Objectives
You have to be very clear about the reason you are investing in the first place. Some people jump into an investment just because their friends recommended it, or they heard that many people were making lots of money from it. Your friends’ objectives and your own might not be the same.
For example, if you have a short term goal in mind, investing in the stock market would not be an appropriate choice of investment, despite the possibilities of short term gains. If you are a retiree in need of regular income, you might have to forgo an investment that promised growth, but didn’t pay regular interest.
Setting your objectives from the start will allow you to find the right investment to match your goals.
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2. Mistake #2: Not Creating A Plan To Achieve Your Goals
Knowing your investment objectives is great, but it’s not good enough to actually achieve your goals. Many people will wish for a house, a vacation, a college fund for their children, or a happy retirement, and do absolutely nothing to ensure that these dreams become reality. The first step to achieving your financial goals is to create an action plan that will tell you how much money you need to save, over what period, in order to make it happen.
Visit an expert financial advisor who will have all the information at hand to help you create a plan.
3. Mistake # 3: Leaving All The Decisions Up To ‘Experts’
It is important to get professional advice when creating an investment plan. However, some people refuse to participate fully in the investing process. They leave all the decisions completely up to their advisors, trusting that they will take care of everything.
However, investors should realize that it’s their money and their goals, and it should be their responsibility to understand their investments. I have seen too many people who are clueless about how their money is invested. Don’t be afraid to ask your financial advisor detailed questions, and make sure that the financial jargon makes sense to you.
4. Mistake # 4: Letting Greed Take Control
Letting greed control your decisions is one of easiest traps that investors fall into. It happens all the time- when the stock market is booming, people lose reason and start making wild bids on stocks that aren’t worth the price. Some people get swayed by ‘too-good-to-be-true’ schemes and sell their car, house and land to get in on the deal.
All too often, the short term gain disappears, and they are left to regret their rash investment choices. You have to take into consideration your objectives, time frame needed to achieve your goals, and your ability to take risks, before you invest in options that promise high returns, but come with high risks.
5. Mistake #5: Lack of Commitment
A lack of dedication and persistence is perhaps the biggest mistake that investors can make. They will have a dream, get the necessary financial advice, and start saving excitedly towards their goals.
Then as the years go by and their goals seem so far away, they give up on the original action plan. Failing to continue to do whatever it takes until the investment objective is met, is the main reason why many people never turn their financial dreams into reality.
To help maintain your investing momentum, it’s a good idea to make periodic visits to your financial advisor. He or she can help re-motivate you and make any necessary adjustments in your action plan until you achieve success.
Copyright © 2007 Cherryl Hanson Simpson. No reproduction without written consent.
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Originally published in The Daily Observer, February 22, 2007
Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl