Sometimes, investing can be intimidating, but it doesn’t have to be. To avoid costly mistakes, it helps to know what to watch out for.
As human beings, we make mistakes. Including when it comes to our financial planning and investments. Making critical financial planning mistakes can cost you tens of thousands of dollars in the future. Because of this, you want to make sure you don’t make these financial planning mistakes at all costs.
- Delaying Getting Started
Don’t wait for the “right” time to start investing—it could never come. Individuals often fail to begin an investment program simply because they lack basic knowledge of where or how to start.
Investment management is a discipline that is not overly complex, but requires continual effort and analysis in order to be successful. That includes getting started with an investment strategy sooner rather than later. If you feel that you need help taking that first step, talk to your financial planner.
- Focusing Solely on Past Performances
Periods of inactivity are frequently the result of lethargy or discouragement over previous investment losses. Likewise, it’s tempting to buy an investment that has made a recent splash by exceeding expectations, but by the time you do, its success could already be fading.
Because of this belief that past performance is an indication of what’s to come in the future, we tend to see a lot of people who only look for top performers when choosing their investments. Rather than blindly chasing yesterday’s winners and losers, focus on future potential. Look at long-term as well as recent performance to gauge an investment’s volatility, and to understand how it fits into your overall portfolio.
- Buying High and Selling Low
As obvious as this point sounds – since the fundamental principle of investing is to buy low and sell high – why do so many investors make this mistake? Sometimes it is simply down to emotion.
If you see that people are making a lot of money from their investments, it’s easy to want to jump onboard as quickly as possible. However, the fear of missing out on great opportunities can make investors jump the gun prematurely and buy high. On the other hand, especially if you’re someone who bought in at the high point and the market starts dropping, you can easily get a fear mindset where you believe that you can’t afford to lose. And that’s when you start selling low.
This is why it’s a good idea to keep emotion out of these kinds of decisions; and be sure to speak with your financial advisor before diverting from your investment plan.
- Diversifying Too Little
Another investment mistake is not diversifying or rebalancing your investment.
As the stock market goes up and down, your investments will likely get out of balance from where you started. If you didn’t rebalance and the market then drops, you may end up with less of your investments in stocks than what you initially signed up for. Inversely, if the market goes up, you may have more than you wanted — meaning you need to rebalance to get back to the level of risk you wanted to start with.
Diversify your portfolio by investing in a blend of different asset classes that might be right for your situation. Stocks, bonds, mutual funds and other investments react differently to changing market conditions. When one asset class is down, others may do well, which will help minimize your overall investment risk.
Investing should be easy – just buy low and sell high – but most of us have trouble following that simple advice. There are principles and strategies that may enable you to put together an investment portfolio that reflects your risk tolerance, time horizon, and goals. Understanding these principles and strategies can help you avoid some of the pitfalls that snare some investors.
Johnson Wealth and Income Management offers a wealth of services custom-designed to help you get the most from your retirement, including Investment Planning. With over 50 years of experience, our mission is to bring intelligence, integrity, and truly individualized value-added investment management and advice to affluent investors, putting the clients first, and to disregard the agendas of Wall Street and the giant firms that dominate the industry.
If you’d like to learn more about how we can help you, contact us here today.
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