Stock Investing Mistakes That Make A Difference

    October 23, 2006

The process of investing is a great way for you to earn potential income. Hardly any people have the knowledge to be able to suceed, however, so many people rely upon brokerages to manage their portfolio for them.

There are, however, some common investing mistakes that people make that can result in huge losses and missed opportunities. Here are a list of the absolute worst mistakes to avoid when investing in the stock market.

Mistake #1 – Invest When You’re Old

You are never too young to start investing in the stock market – in fact, it’s recommended to get started sooner. The perception of investing is that it is reserved for older, financially established people who can invest large sums of money. This is a misconception that is limiting people from tapping into the power of investing. Waiting just ten years can make a huge difference in the total gains that one can make over their lifetime. For example, investing just $2000 a year (thats just $170 a month) starting at the age of 26 can yield $2,114,379 by the time you are 75. This is with an Annual Return Rate (ARR) of 10% per year steady through the life of the investment. The same investment, with the same ARR, made ten years later at the age of 36 will result in a return of only $802,895 at the age of 75. That is a 1. 3 million dollar difference. If you are not able to invest as much as $160 a month, set aside $25 per month. Even this small amount can have a large impact over time.

Mistake #2 – Not Understanding The Company

It is shocking that many people will put more time and research into choosing an MP3 player or home theater system than they will researching the stocks they will invest in. It is imperative that you take the time to understand the financial history of the companies you wish to have shares with. Make sure that you understand what you are buying and how it will benefit you in the long run. It is also important to keep in mind that you must remain objective when choosing stocks. Stocks that you have researched well and carefully selected are more likely to increase than ones you choose based on a feeling. Put your emotions aside and consider your options carefully. Taking time to research and investigate is also important when choosing your financial advisor. Consider meeting with a few candidates and evaluating their approach to investing. If you are meeting with someone on a recommendation, make sure that the person who recommended the advisor is someone who is qualified to do so.

Mistake #3 – Gambling On Stocks

Another common mistake is confusing gambling or speculating with investing. Investing in stocks is part of a long- range financial picture and not a get- rich- quick scheme. While there certainly are high yield quick return programs out there, it is wise to limit your participation in those programs. Day trading is one of these types of programs. When someone is involved in day trading they trade very rapidly in and out of stocks in order to profit daily from marginal changes in the market.

This practice may seem easy to profit from but it actually results in more losses for investors than gains. Similarly, some try investing over a short period of time in very risky stocks. A short- term investment of six months to a year in a hot stock does not belong in a well- thought out financial plan. True investing should be done in quality companies over a period of several years. Finally, listening to someone who has a hot tip is a quick way to lose a lot of your investment. Research any tips you get carefully and only invest if the numbers pan out, no matter how much others insist that this is the stock to have.

Mistake #4 – Putting All Your Eggs In One Basket

Don’t underestimate this old addage. In any portfolio, you will want to diversify your holdings. Additionally, having too much stock in one specific industry can also be a recipe for disaster when the market changes. Spread your money over several different companies and different industries. That way there would have to be some catastropic disaster in order for you to lose all your money.


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