Mistakes to Avoid: Tips and Tactics for Investing Wisely

Achieving success with these long-term investment plans requires that you consistently make contributions, adopt a long-term mindset and not allow day-to-day stock market swings deter you from your ultimate goal of building for the future. To make the most of your earnings when you're young, avoid these common mistakes.

Not Investing

To many, investing seems like a challenging process. It requires focus and discipline. In order to avoid it, many young investors convince themselves that they can invest "later" and everything will be OK.

What many people don't realize is that the earlier you start putting money away, the less you'll have to contribute. By investing consistently when you are young, you will allow the process of compounding to work to your advantage. The amount that you invest will grow substantially over time as you earn interest, receive dividends and share values appreciate. The longer your money is at work, the wealthier you will be in the future and at the lowest possible cost to you.

Being Unrealistic

When you are investing at a young age, you can afford to take some calculated risks. That said, it is important to have realistic expectations of your investments. Don't expect every investment to immediately start delivering a 50% return. When the markets and economy are doing well, there are stocks that do have returns like this, but these stocks are generally very volatile and can have huge price swings at any time. By expecting paper losses in bad years and an average return of 8 to 12% per year over the long run, you can avoid the trap of abandoning your investments out of frustration.

Not Diversifying

Diversification is a strategy that will reduce your overall risk by having investments in a variety of different areas. This allows you not be too exposed to an investment that might not be doing so well and helps keep your money growing at a consistent, steady rate every year. Investing in index funds is a great way to diversify with minimal effort.

Letting Your Emotions Drive Your Investments

Another mistake that many investors make is becoming emotional about their investments. In some cases, this means believing that an investment that has done well in the past, like a high-performing stock, will continue to do well in the future. Buying an investment that has a high price because of its past success can make it difficult to profit from that investment. Conversely, many people will sell their investments, or stop making their investment contributions when the markets are down or the economy isn't doing well. This behavior will lock in your losses, hurt your compounding and take you nowhere.

The Bottom Line - Ignore short-term highs and lows in both the overall market and your individual investments and stay focused on the long-term. By diversifying and remaining realistic and unemotional about your investments, you will be able to build wealth comfortably over time.

Source:  Investopedia

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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