Investing pitfalls

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The Silver Life - Investing pitfalls

Investing on mass media tips is a sure way to turn our nest egg into a garbage can.

We all have some sort of investments to manage and our needs change over time and with circumstances unique to us.  Even so there are some universal truths that each of us should keep in mind no matter what our age or circumstance.

Probably the biggest and most common mistake individuals make is that of not having an investment strategy that is tailored to you and updated regularly.

We have covered how to make an inventory of your own personal needs and goals and the importance of that for you and your investments in a previous article and we will not go over it again but the old saying “failure to plan is planning to fail” is especially true in investments.

It is so tempting to look at one high-flying company and sink our investment funds into that one stock.  Of course there are fabulous successes like early Microsoft, Intel, Homedepot etc, etc.  But for the long run it is not a good strategy to invest in individual stocks instead of holding a diversified portfolio.

The risk of individual stocks is some much greater than the risk of investing in a well-diversified mutual or index fund. Of course be cautious about being overly diversified and generating much higher fees.

How many times have we heard or read about the next greatest investment opportunity?  If we are so naïve as to think that this information is new or not known to many others, we deserve to take our investing lumps.

Investing on mass media tips is another way to turn our nest egg into a garbage can.  Professional advisors we trust are a great way to validate rumors, tips, and media insider information. A professional you can trust spends his or her day validating such “tips” as well as staying ahead of news before it makes the mass market.

Do you have a complete knowledge of how much you are paying in both management and transaction costs?  Many of us have no idea or little idea about whether we are paying too much in fees and commissions.  Before even opening an account, get it in writing what each and every expense is for each investment decision.  Ask about management fees, transaction costs, any other fees associated with your account, how are investment returns adjusted to reflect what you have paid to maintain your portfolio?

A final factor that ties closely with the first above, is not knowing how much risk you can and are willing to take.  We should all know that there is no such thing as a risk free investment.  We should also all know that the greater the reward potential, the greater the risk.  So what is your willingness to risk losing a portion of your investment or perhaps all of your investment? If you are looking at a long-term investment you can probably afford to take a greater risk, shorter term, not so much. But your risk ability needs to be carefully discussed with significant others in your life, and certainly with your professional advisor.

The good news is that for the investor that carefully does his or her research, these mistakes can be minimized or avoided all together.

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