5 Investment Mistakes Not to Make
The biggest investment mistake people make is not investing in the first place. While simply putting money in the market is a positive first step, there are many ways to curb the effectiveness of that investment by investing in the wrong things for your needs or taking advice from the wrong people. To get your investments off on the right foot and grow your portfolio, learn five investment mistakes not to make. Getting trading and investing confused Those internet ads for day traders can be appealing: they make it look easy to make money off the stock market. However, most people's needs are better met by investing rather than trading. Confused about the difference? Investing is a strategy that involves purchasing assets for the long term (decades, often) while trading is a short term strategy where people buy and sell in a matter of weeks, days, or sometimes hours. Since fees associated with trading add up quickly and few people really know how to time the market, investments pay superior rewards in most cases. Expecting target-date funds1 to do all the work Target-date funds shift the balance of investments from growth stocks to conservative bonds as you approach retirement. Like robo advisors, they basically do all the work for you, promising a low-stress, set-it-and-forget-it investment strategy. While it's smart to hold some exposure to these funds, they're geared for a generalist and may not reflect your unique circumstances. These funds tends to have above-average fees as well. Do the research to decide how much exposure to these funds makes sense for you, rather than overinvesting for the sake of convenience. Not understanding diversification2 Diversification is a golden rule of investing. To lower your risk, you must spread out your investments rather than concentrate on a single sector that appeals to you. There are several ways to diversify: by industry, by country, and by asset type. While investors can go deep with diversification, simple approaches exist, such as purchasing index funds or allocating a percentage of your assets to international markets. Cover the baseline, then explore more sophisticated ways to diversify your investments at a later date. Taking investment advice from friends and family Your friends and family probably aren't the best people to take stock tips from, unless they work in the finance industry. Yet many people listen to their relatives or friends when it comes to investing, saving for retirement, and other topics. To protect your wealth and grow your legacy, only take advice from financial professionals. Hiring a financial advisor who isn't a fiduciary Think your financial advisor is working for you? Unless they're a fiduciary, they could be offering investment advice that actually lines their pockets, not yours. Fiduciaries are legally bound to put a client's interest first and act in the client's best interests at all times. While you'll still pay them for their advice, you can be confident that their advice when managing your account is in your best interest. Review your investment portfolio for these common mistakes, then correct any investments that aren't helping your financial goals. Moving forward, invest using the lessons learned from these mistakes to develop good habits and position yourself for a bright future.