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10 Investing Mistakes Most People Make

10 Investing Mistakes Most People Make

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.

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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.

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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.

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    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.

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    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.

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    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.

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    Last Updated on April 3, 2019

    How to Nix Your Credit Card Debt in Less Than 3 Years

    How to Nix Your Credit Card Debt in Less Than 3 Years

    Debt is never a fun thing to be in. But, there are many actions that you can take that will help you rid yourself of the burden of debt once and for all.

    By coming up with a set plan, eliminating your debt can feel much easier than constantly thinking about it.

    This post will provide some tips on how you can do this to help you nix your credit card debt in less than 3 years.

    Hint: there are ways that are easier than you think.

    1. Consider Consolidating Multiple Credit Cards If Possible

    This may not be applicable to you, but if you have multiple cards – it is something to consider. Keeping up with multiple bills is time consuming.

    It will depend on the balance you have on each. Consolidate ones you can but do not do it to the point that you get too close to the maximum limit. Also, it is ideal to pick the card with the lower interest rate.

    Consider if there are any fees or alternatively, rewards, with transferring a balance to another card. Watch out for fees. Note that some cards offer rewards for transferring a balance to them. This is extra cash that can help go towards paying off your debt.

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    Having one or two cards can make nixing your debt much simpler than keeping up with the balance of a bunch of cards. Keeping track of paying the minimum towards a bunch of cards is time consuming. Spend the time to consolidate instead to make the overall process simpler going forward.

    My tip: Have one main credit card. Have a second one that you use for necessities – such as groceries or gas – that offers rewards for those purchases (a lot of cards do) and set the second one on auto-pay. You should be able to pay off a smaller amount on auto-pay if it is a necessity. If you think you cannot, then you may need to cut down a lot on expenses.

    Why do I suggest doing this? Having one thing set to auto-pay is one less thing to think about. One less thing to waste time on. Same idea with consolidating to one main card. Tracking down too many is a hassle.

    2. Try to Pay the Full Balance You Spent Each Month at the Very Least

    You need to pay off the amount you are spending each month when that bill comes in. This is the amount you spent THAT month.

    Do not let the debt keep accruing while you work on paying any unpaid debt that has accrued. It will become a never-ending battle. Try as best as you can to be current on paying for each month’s expenses when that month’s bill comes out.

    If this is a strain, consider why. You may need to cut expenses. Or you may need to consider other cards. Or look at where this money is going.

    3. Pay Extra When You Can – Every Small Amount Counts

    This cannot be emphasized enough. If you are looking at a lot of credit card debt, it can look daunting, but each extra amount that you can put towards the debt will really add up – no matter how small it is.

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    It does not just reduce the principal amount that you have left to pay off, but it reduces the amount that is collecting interest. You will always save money with that reduced interest.

    4. Create a Plan on How to Pay Extra

    Back to the main point, having this plan is giving you one less thing to think about.

    This plan should be a plan that works for you. If it does not work for you, your spending habits, and your views on debt, then it will not be an effective plan.

    For instance, if a set plan of an extra $50 (or another amount that you know you can afford) works for you, then do that. Set that aside every month and pay that extra amount. Treat it like a bill. Choose an amount that works for you and pay it like clockwork as though it was a bill you had to pay each month.

    Little amounts will not nix it entirely, but they will help tackle it and having a set plan can make it less of a chore. Creating a new plan of how much to put towards it each month is an unnecessary added stress.

    5. Cut out Costs for Services You Do Not Use

    If you are signed up for subscriptions that you do not use because of some free trial or for some other reason, cut it out. Your overall financial position will look better.

    In turn, that will make cutting your credit card debt easier. Look at your statements to find these expenses. If you do not use them, you may forget you are paying some unnecessary amount each month. Cutting it out can really add up in savings that you can put towards other needed expenses.

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    6. Get Aggressive About It

    Consider these points:

    Depending on the interest and the level of debt, you may need to give up a few indulgences. For example, instead of ordering delivery or going out to eat, cook at home. Everything adds up.

    Other things may be more of a sacrifice. It may be a trip you wanted to go on, or a daily latte habit you’ve picked up. In these instances, consider how important it is to you and if it’s worth the sacrifice. And if it is a costly expense, think whether you can wait to indulge.

    Cutting an extravagant expense can really help make a dent in your overall debt. Try not to add to debt when you are trying to pay it off. It will be a never-ending battle. Make it less of a battle with these tips and it will feel easier.

    Bottom line: Do what you can to make this process easier for you. Implement steps that do this. It takes time now, but will help overall. Also, keep track of your spending and paying down of your debts. Which is the next point.

    7. Reevaluate Your Progress at Set Intervals

    Doing a regular check-in can help you see your efforts pay off or maybe indicate that you need to give this a bit more effort. If you check every 3-6 months, it will not feel so much like a chore or feel so daunting.

    By doing this, you will be able to better understand your progress and perhaps readjust your plan. Bonus: if you see it pay off, it will feel great to do this check-in. You will get there.

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    Finally (and most importantly)…

    8. Keep Trying

    Do not get discouraged. Pushing it off will make it worse. Just keep trying.

    Once your debt becomes lower, each monthly payment will reduce the balance more. Why? You are paying less towards interest. It will be a snowball effect eventually and it will become much easier to manage. Just get to that point. And know once you do, it will feel easier and motivating.

    Start Knocking out Your Debt Today

    The best way to eliminate debt is to get started right away. Begin by implementing the above steps and watch your debt just melt away. Try out some of the above strategies and see what works best for you. Soon you’ll be on your way to a debt free life.

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    Featured photo credit: Pexels via pexels.com

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