Advertising
Advertising

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.

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 How To Pay Off Credit Card Debt Fast: 7 Powerful Tips 2 How To Make a Million Dollars in 7 Steps 3 7 Cheap but Powerful Products That Can Help Your Waste Less Food and Save Money 4 How To Retire Early (And What To Consider Before You Do) 5 How To Create a Budget (The Complete Beginners’ Guide)

    Read Next

    Advertising
    Advertising
    Advertising

    Published on January 8, 2021

    How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

    How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

    Ever wondered whether your credit card debt is the reason you’re in a bad financial situation? You can’t enjoy any fun activities because a good chunk of your money goes toward debt payment. Heck, you’re even behind on some of your monthly bills.

    The effects of clumsy debt management are too many to list here. This guide is going to help you discover how to pay off credit card debt fast and start chasing your financial goals.

    Debt problems are the last thing anyone wants to encounter. But things can get out of hand when all the “little debts” you take accumulate in interests.

    What if you knew some simple and proven ways to be debt-free quickly? Implementing them would mean better financial health for you. It becomes possible to free up cash for your “wants.” These include taking a trip or buying something you’ve always desired. All that while paying your bills on time!

    Let’s not wait any longer. Here are 7 powerful tips for paying off credit card debt fast:

    1. Pay More Than the Minimum Credit Card Payments

    Many people only pay the monthly minimum on their credit cards. Truly, that’s the right amount for staying on good terms with your credit card company. But you need a different approach if you’re looking to achieve financial independence within a short time.[1]

    Most of your payments go toward interest costs when you only pay the minimum amount. A substantial sum of your balance remains standing. As a result, it becomes more expensive to eliminate your debts.

    Advertising

    You don’t want to wait more than 10 years to get rid of debt while it’s possible to do it sooner. All you have to do is double that $100 minimum payment to $200 or go higher.

    The good thing is that minimum credit card payments are affordable in most cases. By paying a higher amount, you reduce your interest costs, lessen your borrowing period, and boost your credit score.

    2. Start With High-Interest Credit Card Debt

    If you have more than one credit card debt, prioritize putting the extra money toward the ones with the highest interests. This debt pay-off strategy, known as the debt avalanche method, is essential for being debt-free quickly.[2]

    First, you need to list down all the credit card debts you have in the order of their interest rates. Next, you choose the one with the highest interest and pay a significant amount toward it each month. It can be an amount twice or even thrice larger than the minimum payment.

    At the same time, you make monthly minimum payments on the other debts. Their interest charges won’t be as costly as that of the first debt on your list. You only move on to the next high-interest debt after the first one is gone. Remember that your focus is on the interest rates and not the balances.

    3. Revisit Your Budget

    Budgeting is useful for tracking your financial moves. Once you create a budget, some tweaks along the way can make it work for you better. One situation that requires you to revisit your budget is when you’re struggling with debts. It might hurt a bit to slash some expenses. But you also don’t want to miss out on achieving financial freedom in the long run.

    You can reduce some variable expenses to free up more cash for credit card debt payments. They’re the ones that change from time to time. Some examples are groceries, fuel, and clothing.

    Advertising

    Other opportunities for cutting down your spending lie in non-essential expenses. Instead of dining out all the time, you can cook at home more to save money. You can also share some subscriptions with friends and pay a fraction of the cost.

    If you’re determined enough, you can eliminate all your unnecessary expenses and focus on paying off your credit card debt first.

    4. Avoid Using Your Credit Cards

    Do you want to know how to pay off credit card debt with a low income? One simple way is to stop using them. Having your credit cards everywhere you go means that you’ll be more tempted to buy unnecessary stuff. In this case, you spend money that you don’t really own and get deeper into debt.

    The quickest fix to stop the debt build-up is spending with cash. You’ll be more aware of everything you can afford at any particular time. If you decide to keep one or two cards to ease the transition, always make wise choices. For instance, only use them when experiencing financial difficulties.

    It’s best to categorize your fun activities under “discretionary spending” in your budget. This way, you won’t need more debt to kill your boredom. By halting your credit debt from accumulating, it’s easy to pay down what you already owe and be happy with the progress.

    5. Start a Side Hustle to Boost Your Income

    You’re probably turning away a lot of money by not monetizing your skills. Everyone has something that they’re good at doing. And you can use that to generate extra income for attacking your credit card debt.

    If you look around your neighborhood, you can find several side hustle opportunities. It can be pet sitting, tutoring, or lawn mowing. You can start an online business by offering services such as digital marketing, content creation, and web development. Such skills go in high demand on freelance sites and job boards.

    Advertising

    Finding clients on social media is also a good strategy to utilize your skills and make more money. Facebook groups, Quora Spaces, and subreddits are some places to look for side jobs. You only have to join a niche-specific platform, share your services, and respond to any opportunities.

    It’s possible to learn a skill, practice it, and earn from it. Use the free resources online or purchase some e-courses to get started.

    6. Sell Your Used Items for Extra Cash

    Starting a side hustle isn’t the only way to generate extra money. You can turn unwanted items into cash for paying off credit card debt. Whether it’s an old TV, book, or furniture, there is always someone itching to buy your used stuff.

    A garage sale, as much as it’s old-fashioned, is perfect for getting your neighbors and passers-by to buy from you. You keep all the money because there are no business permits or taxes involved. While you may not make much cash, it’s better than leaving your stuff to go defunct in your storage.

    Other than that, you can sell your used stuff on online marketplaces. Facebook groups are great places to start if you want quick approvals and hence sales. You only have to ensure that your listing follows Facebook’s commerce policies.

    When selling any pre-owned items online, ensure they’re in good shape to avoid problems with your buyers.

    7. Know When to Seek Help With Your Debt

    Asking for help with your credit card debt can be challenging to do. But letting it drown you is a road you don’t want to take. While you may feel embarrassed at first, it’s the best way to get back on track when you run out of options.

    Advertising

    There are tons of non-profit credit counseling organizations that can offer you free guidance on how to escape the debt trap. An example is The National Foundation for Credit Counseling. They simply review your finances and help you determine the source of your financial problems. After that, they match you with an actionable debt management solution.[3]

    In extreme cases, the debt solution can be:

    • Debt relief – where your debt is partially or wholly forgiven
    • Debt consolidation – taking out one loan to repay others
    • Debt settlement – the creditor forgives a significant portion of your debt
    • Bankruptcy – legal process for seeking relief from some or all your debts

    It’s necessary to carefully weigh your options before deciding on the way to go. Find out how it might affect your credit score and any other risks.

    Wrapping It Up

    Debt is a major setback when you’re trying to prosper in life. Paying off credit card debt is essential if you want to reach your financial goals. That means having more free income, a good credit card score, and even a chance to retire early. You become more productive each day because of the peace in your mind.

    So, you now have some tips on how to pay off credit fast. Go ahead and get rid of that good life progress killer!

    More Tips on How to Pay Off Debt

    Featured photo credit: rupixen.com via unsplash.com

    Reference

    Read Next