Investing mistakes you want to avoid
Its easy to have confidence in investments made during bull markets as share prices climb and any losses from poor decisions are usually recovered fast. But in times of increasing market volatility, mistakes tend to be magnified and many investors may lose confidence in their decision making. Lets take a quick look at some common mistakes that can generally be avoided.Timing the marketDuring a downturn in the market, investors who regularly contributed to their portfolios when the market was rising often decide to stop investing until conditions improve. This can be a costly mistake. Not only is it impossible to time the ups and downs of the market with consistent success, but by sitting on the sidelines during a down market, you could miss out on an opportunity to buy stocks and other investments at low prices. In good times and bad, long-term investors should carefully consider the merits of dollar-cost averaging. By continuing to make investments of the same dollar value at regular intervals, investors can buy more shares when prices are low, fewer when prices are high.A periodic investment plan such as dollar-cost averaging does not assure a profit or protect against a loss in declining markets. Also, since such a strategy involves continuous investment, investors should consider their ability to continue purchases through periods of low prices.It is also important to continue to make contributions to your 401(k) plan or similar employee-sponsored retirement plan. These contributions often earn matching funding from your employer, providing additional earnings potential.Skipping the researchDetermining whether an investment is appropriate for your portfolio requires research. There are more companies and investment products today than ever before, but determining which investments have potential for growth requires information.Before making an investment, its helpful to evaluate it in the context of comparable opportunities. At a minimum, you should find two articles (from different authors) about the company or investment product and review the companys Website. Both the investor relations section and news announcements found on the site can provide useful information. You should also review financial statements and carefully investigate anything that looks vague or unusual. In addition to its role in making sound investment decisions, research can also help you to feel comfortable with the holding in spite of temporary ups and downs.Chasing past performanceYesterdays hot stock may have already topped out. Todays innovative start-up may not have the wherewithal to stay in business. So its important to make investment decisions based on more than past performance and a few headlines. Investments should be made with the future in mind. If there is strong growth potential, and the fundamental likelihood of the companys success looks good to you, then it may make sense to invest even after a successful run. Keep in mind, however, that past performance is no guarantee of future results.Trading too oftenFrequent trading reduces the total return of your portfolio. In addition to the fees and taxes that are incurred, frequent trading does not reflect a long-term outlook and thoughtful investment strategies. Neither timing the market nor running scared enhances your portfolios performance. In fact, a study from the University of California found that the average return of retail investors who traded most frequently was 7 percent lower than the return of those who traded least frequently.Selling low, or not at allBefore selling a stock or investment product that has tumbled, its important to do some additional research to understand why it dropped. This research will help you anticipate the potential for recovery. If the setback appears to be triggered by a temporary problem that can be easily overcome, you may want to consider buying more while the price is low.Conversely, its also important to know when to take a loss. It hurts to lose money, but a little pain now may pay off in the long run. If your company or investment relies on an industry that is likely to be weak for several years, consider selling to avoid any additional losses.Learning from your own past mistakes, as well as from those made by others, is an important step toward becoming a better investor. To find out more about avoiding these and other mistakes often made by investors, contact your financial adviser.Provided courtesy of Fraser M. Horn and Dudley M. Irwin, Investment Advisor Representatives with Berthel Fisher in Edwards. Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. (BFCFS). Member FINRA/SIPC. 1st & Main Investment Advisors is independent of BFCFS.
Support Local Journalism
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User