Advertising

10 Investing Mistakes Most People Make

10 Investing Mistakes Most People Make
Advertising

Whether you are investing to build a retirement fund, or to put your excess cash to work, you should always be wary of the following investment mistakes. These can ensnare an experienced investor as easily as they can entrap a rookie. Here are 10 investing mistakes to watch out for:

1. Investing while in debt.

The phrase “cheap debt” is thrown around by the financial experts routinely. However, it does not apply to credit cards. To invest money when one is living off credit cards is a big no-no. One should repay credit card debt as soon as possible.

Similarly, putting money aside for investment while having a student loan or a house mortgage might seem like a good idea, as the expected rate of return on the investment is higher than the expected cost of debt. However, the comparison is incorrect. Today’s cost of debt is being compared to tomorrow’s rate of return. We are coming out of the zero interest rate period, and it is not unreasonable to believe that debt will become expensive again over time. One should prioritize offloading all debt before one starts setting aside money for investments.

Advertising

2. Investing with a very high cost of transaction.

When one buys or sells investments, one invariably coughs up fees and charges. In some cases, the cost of a transaction is quite high. When investing in a house, for example, be sure that you do not liquefy the investment within five to seven years. If you sell the house within that time frame, then the transaction costs will substantially eat into your rate of return.

Another avenue in which the costs are very high is investment in physical gold. Apart from the transactional costs of gold, one should account for the charges applicable for its safe and secure storage. It is more advisable to invest in gold ETFs instead of physical gold.

3. Investing with a single-minded focus on fund fees.

The internet is full of advice on choosing low-cost funds instead of paying a premium on funds managed by rock-star fund managers. Undoubtedly, a lot of advice is sound, but some investors make decisions purely based on fund fees while being ignorant to other parameters like the rate of returns they deliver, or the amount of asset diversification they have. In some cases fund houses use “cheap funds” as a marketing ploy. In Britain, HSBC’s Equity Tracker Fund has an expense ratio of 0.27% a year, while Virgin’s equivalent equity fund charges a full percentage point extra. However, both the funds are being heralded as low-cost funds by their respective fund houses.

Advertising

4. Investing in hot tips.

Hot tips and fads rule the market, and just about everyone is an expert on the Next Big Thing. However, such advice should be taken with a grain of salt. Investment is a process, and due research is a necessary aspect of this process. After all, if you are not willing to put in the time and effort necessary when making an investment, you can’t expect your investment to reward you with your returns.

11893066864_375bbfbcac

    5. Investing decisions based on market conditions.

    Market conditions cannot dictate one’s investment strategy. The inherent volatility in the market is frustrating, especially when investment portfolios underperform the benchmark index. Doubts start creeping into one’s investment strategy. However, investment strategies cannot change with the market cycles. It is imperative to have faith in one’s strategy, provided it is based on sound characteristics. A good strategy with a long-term outlook may underperform for a period of several months based on the market conditions, but in the long run it will reap the desired rewards.

    Advertising

    6. Investing while overpaying for investment services and financial planners.

    There are multiple avenues for investing one’s hard-earned money. To understand all the options out there you may need assistance, and that is where financial advisers come to our aid. However, when a financial adviser builds a portfolio of low-cost index ETFs, then one wonders if there is any value to the adviser. The cost advantage of investing in a cheap ETF is consumed by the fees of the adviser. Some advisers even receive hefty commissions for recommending investment products. If that is the case then the financial adviser’s motives will not match your interests. One should be wary of such advisers.

    7. Investing on margin.

    No matter how enticing an opportunity, one shouldn’t buy stocks or investments on margin. Margin trading has its benefits, but those should be left to the professionals. If the investment is leveraged, then one bad trade can wipe out a significant chunk of one’s investments and set one back significantly. In addition, when investing in property that is not for personal use but for investment, using housing loans is not a good strategy. The recent housing crisis points to the flaws of such leveraged investing. Bottom line: always invest with money that you have and can afford to lose without any adverse impact to your financial health.

    8. Investing with an unrealistic expectation of return.

    Investing with an unrealistic expectation of return, and without accounting for the compounding magic of time, is a strategy that is doomed to fail. In pursuit of manifold returns, people dabble in the penny stock market and end up burning their hard-earned money. In the end, if an investment idea sounds too good to be true, then it probably is.

    Advertising

    9. Investing out of fear and greed.

    Emotions are attached to one’s investment decisions. We all feel joy when an idea works out to our benefit, and all feel despair when a decision goes bad. However, the emotions of greed and fear should not override one’s sense of logic and reason. Greed and failure prevent one from making smart decisions; they make one follow the herd mentality instead.

    10. Investing without a plan.

    Investing is a boring process. To see meaningful returns, one needs time to do its magic. Patience is key. An investment plan, revolving around meaningful financial goals, helps when things get rough. It provides motivation to save money when the same money could easily be spent on mundane activities. It provides the focus and determination required to pursue a life of financial independence.

    More by this author

    29 Incredibly Useful Websites You Wish You Knew Earlier 20 Uses for Microwave That Will Surprise You For Sure 7 Tricks To Make You A Spreadsheet Expert 10 Tips to Travel in Crowded Public Transport What Every Introvert Should Do To Live A Great Life

    Trending in Money

    1 Financial Freedom is Not a Fantasy: 9 Secrets to Get You There 2 40 Healthy And Really Delicious Meals You Can Make Under $5 3 Life Insurance: A Secure Way To Protect Your Future. 4 How To Save Money On Groceries: 13 Quick Tips 5 10 Investment Tips For Beginners

    Read Next

    Advertising
    Advertising

    Last Updated on July 20, 2021

    Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

    Financial Freedom is Not a Fantasy: 9 Secrets to Get You There
    Advertising

    Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

    Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

    Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

    In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

    Break Free of Your Finances

    Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

    When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

    Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

    Though it seems hard to believe, it is really very simple to get financial freedom.

    To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

    While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

    Advertising

    Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

    1. Stop Unnecessary Spending

    We often spend money inwardly, instead of objectively.

    For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

    To stop this habitual spending, log down all your spending over the course of a month.

    Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

    This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

    2. Plan a Monthly Budget

    This is a great opportunity to get serious.

    Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

    Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

    3. Cut-up Credit Cards

    Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

    Advertising

    If not, you may want to consider ridding your life of the burden that credit cards bring.

    Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

    Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

    4. Increase Savings

    There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

    It’s good practice to save up to 15% of your income.

    Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

    Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

    5. Invest Wisely

    Consider investing in funds.

    Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

    To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

    Advertising

    Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

    6. Invest in Gold

    There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

    You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

    Another way to invest in gold is through ETFs (Exchange Traded Funds).

    These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

    With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

    7. Stash Emergency Funds

    Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

    If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

    Make it hard to get your cash.

    Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

    Advertising

    8. Find Fabulous Mentors

    Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

    If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

    There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

    9. Be Extra Patient

    Patience is the key of financial success.

    Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

    So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

    Financial Freedom for All

    Anyone can achieve financial freedom, regardless of their financial circumstance.

    Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

    Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

    Featured photo credit: rawpixel via unsplash.com

    Advertising

    Reference

    [1] Hartford Gold Group: IRA Retirement Accounts

    Read Next