If you’re starting to invest you may be overwhelmed with how many different investment options there are out on the market. It’s easy to get caught up in all the hype and the temptation to make a quick buck in the stock market; but the truth is – just like anything in life worth having – it takes time and dedication to reach your investment goals.
If you want to become an intelligent investor here are four things to avoid:
Never take advice from friends
As a financial planner the worst thing I hear from clients is “I want to buy xx investment because my cousin told me it’s a sure thing.” There are so many problems with that statement that I don’t know where to begin.
The first problem is that what’s best for me may not be best for you and therefore taking advice from your family and friends is a bad idea. The second problem is that there’s no sure thing when it comes to investing; there are low risk and high risk investments, but definitely not a sure thing.
Don’t check your accounts every day
If you invest in the market and buy mutual funds, stocks, bonds, ETFs or any other type of investment product it will fluctuate day to day with the market. Watching your accounts every single day could make you crazy with every little change in the value of your account.
It’s a good idea to check your accounts on a quarterly basis to make sure all contributions are going into the right investments and to watch the value of your account (hopefully) increase, but checking it every day could make you panic and you don’t want that.
Avoid putting all of your money into one investment
When people say “don’t put all your eggs into one basket” they aren’t talking about a particular financial institution, they’re talking about one individual investment.
If you buy one investment on the same day you’re hoping that you’re buying it at the lowest possible price, the odds of that are very slim. If the market drops and all your money is in the same investment your account value will be more affected than if you spread your money around with a well balanced portfolio and several different investments.
Don’t sell when the market drops
This is the absolute worst thing you can do for your savings and investment accounts. If the way to make money in the stock market is to buy low and sell high then why do people panic and sell after the market crash – when the prices are low. It just doesn’t make sense.
When you see a drop in the value of your account it’s only “on paper”, you won’t actually realize the loss until you sell your investments and that’s just not a good idea. Even though it may be painful to see the value of your accounts decline, just keep calm and stay invested. Markets work in cycles and eventually the value will recover, eventually.