Please tell us you’ve been good. If not, that’s okay because every investor makes mistakes. That’s how we learn. In our “6 Ways to Burn Your Mortgage” articles, we helped homeowners pay off todays’ sizeable mortgages a little faster. Now we have put together seven types of investing sins that you should be aware of — take note and you’ll be on your way to financial freedom.
7 Deadly Sins of Investing
Whether you’re new to the investing game or a seasoned pro, the biggest mistake an investor can make is to invest without a specific strategy in mind. When you know why you are investing your money, what kinds of returns you would like to see, and in what time frame you would like to see these returns you will be able to choose the right investments to help meet your goals.
Investing Sin #2: Not Factoring Major Life Events
A major life event, such as new baby, buying a new home or divorce, may have an impact on your investment strategy. That is why it is important to create a contingency plan to account for life’s surprises.
Investing Sin #3: Not Educating Yourself about the Different Investment Products Available
You don’t know what you don’t know. And when an investor lacks knowledge about the variety of investment products available, an investor could risk the possibility of investing in products that don’t match her goals or her risk tolerance. To avoid this, speak with an investment advisor who will help you find the best options for you.
Investing Sin #4: Putting All Your Eggs into One Basket
When investing funds in one company or asset class (stocks, bonds and cash), some investors forget to protect themselves from potential risk and invest in only one company or asset class. This is a bad move, because by placing all your money into one type of investment you run the risk of making yourself vulnerable to sudden changes in the economy. The best way to avoid this is to diversify your investments among different asset classes.
Investing Sin #5: Developing an Emotional Attachment to the Money You’re Investing
The best way for investors to realize potential returns is to stick with a long-term investment plan. Responding to sudden news of markets fluctuations or the daily changes in the value of an investment is a surefire way for you to sell too early and buy too late.
Investing Sin #6: Having Unrealistic Expectations about Returns
All investors want to beat the market, however, this rarely happens. Instead, it’s important to be realistic about the amount of time it is going to take to realize a return on your investment and to have a disciplined investment approach.
Investing Sin #7: Being Clueless about Tax Implications on Investments
It’s hard enough choosing a company to invest in let alone having to take into account the tax implications of potential returns on investments. But that’s life: you can’t escape paying taxes. So that’s why not being aware of the tax rules can leave an investor with a lower than expected tax return at the end of the year, or a nasty tax bill. As an investor, you need to be aware of how to protect your money — without breaking the law — so you can avoid cutting a big fat cheque to the Canada Revenue Agency.images courtesy of freedigitalphotos.net and stuart miles