A smart investment can be a lucrative way to build a nest egg or pile up money for other goals. However, it’s not uncommon for the market to sometimes work against you.
Some of the factors that stall your investment are out of your control. Others, however, can be the result of stupid mistakes.
Avoid the following financial problems at all costs. Avoiding these errors can prevent a lot of financial distress and increase your chances of making more money.
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1. Buy stocks just because it’s hot
Some stocks go up because they are new cool investments to own. Some memetic stocks are trending higher due to the popularity of social media rather than sound investment principles.
Investing in stocks simply because they are popular is not a sound strategy. If your stock prestige stalls, you will easily lose your money. When researching stocks, dig deeper and look for what makes the stock a truly sound investment.
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2. I don’t know why I should buy stocks
Some investors are drawn to stocks because of a company’s name recognition or rumors. For example, the FAANG stock, which refers to American technology companies Facebook (now Meta), Amazon, Apple, Netflix, and Alphabet (known as Google), is a familiar name.
But like any investment, these stocks have ups and downs. Before you invest in any stock, no matter how well-known, do some additional research to understand why you’re buying the stock rather than blindly investing in it.
3. Panic Selling
Investing in stocks rarely goes up smoothly. Even the best-performing companies can underperform or fall prey to an overall decline in the US economy. Watching your investment go south can be terrifying and you may want to bail out as soon as possible.
However, panic selling will force you to lock in losses as you will not be able to make a profit later if the stock recovers and starts rising again. Please give me. Sell for the right reasons, not for panic.
4. Carrying too much cash
Even in a high-yield savings account, cash typically doesn’t yield as much return as investing in stocks and bonds.
Depending on market conditions, you may want to increase or decrease the amount of cash you have on hand. But it usually makes sense to always consider investing at least some of your money in stocks and bonds.
This is especially true for long-term goals such as building a retirement nest egg.
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5. Timing the market
Stock performance can fluctuate and may not always meet expectations. So trying to time the market is often silly.
Instead, invest with a long-term view in mind. Investing in solid companies, or investing in simple index funds, often pays off in the long run.
6. You don’t understand asset allocation
Usually you can’t just set up your financial portfolio and walk away. You can change your investment mix based on market factors or change your asset allocation as you approach retirement age.
If this task seems overwhelming, consider talking to a financial advisor who can offer advice on how to select assets to meet your specific needs.
7. An immediate investment
If you need money quickly, there are better options than putting that cash into the stock market. Due to the high volatility of stocks, it is usually not wise to put cash into the market when you need it immediately.
Instead, consider a high-yield savings or checking account. CDs could be another good place to put the money you’ll need in the next few years.
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8. Load your employer’s inventory
Companies can include stock options as part of their employee benefits package. That’s good. However, think twice about investing large sums of money in company stock. That could mean avoiding company inventory overloads like 401(k) plans.
Instead, remember to diversify your portfolio. This provides a safety net should the company’s fortunes turn south.
9. Don’t Set Goals
When was the last time you thought about your investment goals? Do you know exactly what you’re trying to achieve, or do you just have a vague idea?
Sit down and ask a few questions about what you want to achieve with your portfolio. Will your portfolio fund fun trips, home renovations, or another goal? Or are your investments geared toward retirement savings?
By understanding your goals, you can steer your investments in the right direction towards what you are trying to achieve.
Avoid falling into traps that can hurt your portfolio. Avoid a few basic mistakes and start looking for fancy money moves you can make.
Eliminating unforced errors improves the chances of investment success. If you’re lucky, you may be able to retire sooner than you think.
Details from FinanceBuzz:
This article, first published on FinanceBuzz, is the 9 Worst Investment Mistakes You Should Never Make.