Wednesday, February 22, 2012

These Are The 10 Most Common Mistakes Investors Make

By Ken Moraif

In sports, championships often boil down to this fact: your team may have had success after success, but it’s their mistakes which determine whether they win or lose.

I believe that’s true with investing, too. If you’re disciplined enough to avoid making mistakes, you’ll win most of the time. Here’s what I believe are the top ten investor mistakes:

  1. Believing that one guarantee covers everything. When somebody says that your principle is guaranteed, does that mean your original investment amount is guaranteed, or your returns are? Learn the specifics.
  2. Doing nothing. I recently met a couple who heard my advice to get out of the market in November 2007—and they're still out. They've been out for four years now, not making any money. Not a good idea.
  3. Buying investments for tax benefits. Don’t buy something just because you’ll get a tax break. Invest because you’ll get a financial benefit. Tax breaks are gravy, not the maincourse.
  4. Making a purchase or sale based on a previous price. Don't make decisions based on the price you invested at. You may have bought something at $10.00 a share, but don’t fall in love with that number. You've got to look at the future and make your decision based on the investments’ prospects.
  5. Buying based on a hot tip. Once you’ve heard a hot tip, it’s already cold. Last year is gone, and it's not coming back.
  6. Owning too many of the same thing. I meet people who have 28 different mutual funds and all invested in the exact same thing. Diversify.
  7. Owning too many accounts. Some people have 17 IRAs and 12 brokerage accounts and on and on. You can’t manage that many accounts well.
  8. Taking advice from the media. Money Magazine is great, but it shouldn’t be your financial advisor. What’s printed is already old news. You don't want to buy yesterday's picks.
  9. Replaying the past. If you lost money in the past, and you keep employing the same strategy (or lack thereof), you're going to lose money again.
  10. Not having a sell strategy. It’s possible to avoid losing money in the next bear market Plan for the inevitable. Create an exit strategy.

These mistakes can be avoided. You can be a successful investor, just by steering away from the small mistakes that can cost you the prize.

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