In the first part of this series, we learned about five common mistakes that are so easy for investors to make. Maybe you recognized some mistakes in the list that you’ve made in the past or were making in the present. (You’ve fixed it, right?) Here is the second half of our ten-item list. Review these investor mistakes carefully and make sure you aren’t guilty of any of them!
Investor Mistake Six: Letting Market Predictions Cause Inaction
No one has shown a consistent ability to predict where the market is headed in the future. So don’t pay attention to either gloomy or optimistic predictions about the market. Women, in particular, are often more prone to inaction due to fear of losing investments. Instead, approach investing with a formal plan so you can make informed decisions with confidence. (Don’t fall into the trap of Chicken Little Investing!)
Investor Mistake Seven: Expecting the Market to Continue in Its Current Direction
Investors have a tendency to make investment decisions based on current trends in the market. Thus, if the stock market has been performing well for a period of time, investors tend to move more and more funds into that area. However, markets often revert back to the average return when they have an extended period of above- or below-average returns. This is exactly what we saw when stocks eventually bounced back from historic lows in 2008.
Investor Mistake Eight: Not Understanding That Saving and Investing Are Two Different Concepts
Saving involves not spending current income, while investing requires you to take those savings and do something with them to earn a return. Saving often becomes easier when separated from the choice of where to invest. Find ways to make saving as automatic as possible, then take your time to research and select specific investments.
Investor Mistake Nine: Considering Only Pretax Returns
One of the most significant expenses that can erode your portfolio’s value is income taxes. Thus, your pretax returns aren’t really a true picture of your income. You need to look at after-tax returns. It can be disheartening to see the difference! If too much of your portfolio is going to pay taxes, start investigating strategies that can help reduce those taxes.
Investor Mistake Ten: Not Getting Help When You Need It
The investment world has become very complex. You now have a vast assortment of investment vehicles to choose from. Don’t feel that you need to make all of these decisions by yourself, especially if you don’t fully understand all the choices. Take time to educate yourself. (This article is a good start.) There are tons of resources online, including the investment and saving article archives at WIFE.org. You can also hire an investment advisor. You can also participate in a local Money Club™ or start your own. Consider hiring an advisor who works for a flat fee rather than a broker who works on commission.
If you missed it, see part one of our ten-item list