When it comes to investing, everyone is bound to make mistakes. In September 2008, a series of investing mistakes made by major Wall Street firms and large banks culminated in a spectacular stock market crash and the advent of the global financial crisis. Quite a few investing mishaps are caused by mistakes that can be prevented if you’re aware of them ahead of time. Here are six examples of situations you should definitely avoid.
1. Putting Your Savings at Risk
All investments carry a certain level of risk, and some are even riskier than betting on a game of blackjack. For this reason, never invest money you should be setting aside for emergencies. Prospective investors should first work toward building a cash reserve equivalent to three months’ worth of household expenses before they start building a portfolio.
2. Ignoring Expert Advice
Making investment decisions without a financial planner is similar to attending a seminar given by Warren Buffett and completely ignoring his advice. There’s a lot more to investing than opening a portfolio account and choosing financial instruments. Money management, risk tolerance, and investment horizons are topics you should discuss with a trusted San Diego financial advisor.
3. Putting All Your Eggs in One Basket
The key to a diverse portfolio is to select investments with risk profiles that are truly different from other instruments. For example, if you already hold blue chip stocks, selecting a mutual fund that tracks the S&P 500 wouldn’t diversify your portfolio. Instead, you should be looking at securities such as real estate investment trusts.
4. Setting Unrealistic Expectations
Before the housing market crashed in 2008, many real estate investors unrealistically expected property values would continue to skyrocket. The most outlandish expectations tend to be tied to highly volatile instruments, which investors should avoid unless they’re ready to lose all their money, as if they were playing roulette.
5. Ignoring Money Management Principles
Every investment must be made with money management in mind. If your retail brokerage firm lets you trade on margin, you should never take a market position without setting some kind of stop-loss feature, which happens to be a golden rule of money management. Doubling down and going for broke are dangerous strategies many beginners end up implementing because they didn’t learn about money management.
6. Failing to Set Financial Goals
Without financial goals, you risk reaching retirement age without having invested at all. When it comes to financial planning and investing, start at an early age, preferably when you’re earning disposable income. If you procrastinate about setting investment goals now, you’ll probably continue to do so as the years go by. The idea is to get into an investing routine now so it becomes part of your life for the long term.
It’s easy to make investing miscalculations when you don’t know what pitfalls to look out for, but if you remember to keep an eye out for these six mistakes, you can have greater confidence in your ability to manage your portfolio well. If you truly want to make the most of your investments, seek advice from an experienced financial planner. Jan Gleisner has 16 years of experience in investment strategy and can help you manage your portfolio all the way through to retirement. Call 858-337-2385 to schedule an appointment.