Mar 15th, 2010
Investing is one of those things that people think is sexy. Nice suit, nice shoes, clean cut, tall athletic people living the huge lifestyle in New York. Hey that sounds like a damn good time! The truth is, its not easy, and those poster models down on wall street aren’t a hell of a lot smarter than you or me. They think they are, but I promise you can do as well as any of them can with the exception of a rare few. Now stop right there, I know what you are thinking. That doesn’t mean jump in and throw your life savings into an investment account. Read this first and lets cut off any of those newbie tendencies before they have a chance to take hold. Mistakes to avoid:
1) Not paying off debt before investing.
This one is easy. If you are paying somewhere in the realm of 20 percent on credit card debt, and averaging a great 15 percent return on your investments, you’re paying out more money in interest than you’re earning on your investments. Not to mention taxes, broker fees and all that other stuff that comes out of that 15%. Get rid of credit card debt first unless you can get a crazy low interest rate (like 0-5%).
2) Following tips
I’m not just talking about penny stock emails. I’m also talking about friends, family, and anyone else who promises you they have a tip to make you rich. If you can make me rich why the hell aren’t you already rich uncle Ricky!?
Im as impatient as the next guy, but investments take time to grow. Too many investors make the mistake of getting easily frustrated and selling quickly. Don’t be a slave to minor fluctuations in the market. A great example is my 401k. I look at it, get ready, once a year. Thats right, once per year. I know I have things setup correctly, I know I am diversified, so I do not worry from day to day how it is doing.
4) Being to risky or too cautious
Didn’t your momma ever tell you moderation is key? Or was it don’t drink on weekdays? Well both are good bits of advice, though as you get older the latter is self apparent while the former becomes cloudier. Don’t dump all your money into one stock. In fact, don’t dump all your money into stocks (bonds, gold, money market). On the other hand don’t get a portfolio full of bonds and wonder why you aren’t rich when you retire. If you are young, the majority of your investments should be in stock, hands down, but spread it out, or grab an index fund. If the market hasn’t grown by the time you retire Mr. 30 something, why then, the country has probably collapsed and there is likely bigger trouble you are worrying about.
5) Pulling out
If, by chance, you manage to make a lot of money, or some money, or any money, you might be tempted to pull out completely and reap your rewards. Well, don’t. Reinvest, keep gaining, it will be worth it in the long run.
Oh and when you all get rich, don’t forget to tip your blogger…