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Five Investment Mistakes You Don't Want To Make

By John Rasor

Republish: EasyPublish™
Published: 30Dec2008
Word count: 556
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These are frightening times for people trying to build or preserve their retirement accounts. The stock market has produced daily swings large enough to churn just about everyone's stomach. This landscape makes it easy to commit big mistakes and investment no no's. Credit markets have tightened such that no credit score is good enough to borrower money. Here are some of the worst maneuvers you can make during these crazy economic times.

DON'T FREAK OUT: During bear markets like today it's easy to freak out as we watch stock prices fall almost on a daily basis. Fear kicks in and we think, sell now and cut our losses. The worst thing to do is sell, hide the money in cash and wait for things to turn around. Why? Because more often than naught things turn around and all of a sudden we're back in after prices have raced back up.

Don't act on fear. If you have an investment account that is well diversified and designed with long term objectives in mind, chances are that your portfolio should be left alone.

EUPHORIA: Just the opposite of freaking out. During bull markets your portfolio is going through the roof. Everything you touch turns to gold, equities are surging and all common sense goes out the window.

As the equity markets rise, investors reason that the risk of a significant decline fades away. When the DOW hit 15,000 you could feel the Euphoria on Wall Street. I'd say a few people freaked out when it dropped below 10,000. As the market soars the potential for a drop is greater than before. Thus the market becomes riskier, not safer.

PUTTING ALL YOUR EGGS IN ONE BASKET: Probably the worst investment mistake of all. Confining your portfolio with what's hot today makes you a sitting duck. Chasing the sector of the moment is a dangerous game. Look for a balanced group of investment vehicles that include stocks, bonds, mutual funds and a money market component.

Keep in mind that diversification does not assure against market loss and there is no guarantee that a diversified portfolio will outperform and undiversified one.

NOT HAVING A PLAN: You may have heard the old saying....if you don't know where you're going, any road will take you there. You must have a personal investment plan with specific goals and objectives. Whether it's retiring at age 60 or saving enough money for your children's college you need a plan.

A plan will help you adhere to a sound long term policy even when current market conditions are unsettling. Having a good plan and sticking to it is not near as fun as trying to time and beat the markets, but it will likely be more profitable in the long run.

BELIEVING THE HYPE There is almost nothing on financial news shows that can help you achieve your goals. News letters rarely offer anything of value and when they do, how do you identify them in advance? If there really was a secret formula to making big bucks do you really think someone would make a living telling others how to do it?

Spend less time watching financial news shows and reading newsletters. Spend more time sticking to your investment plan. No matter the market, sound investing principles will serve you in the long run.

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