Common Sense Guide To Investing

We all want to be successful when it comes to investing. Sadly most of us aren’t. We have good intentions, but we get lured (or suckered) into hype and false promises. In this post, I am going to walk you through some common mistakes people make when investing and try to help you avoid making them as well.

3 Tips For Smarter Investing

Risk and Return Are Related

No matter what the infomercial on TV or the radio ad tells you, risk and return are related. The more return you want, the more risk you have to take on. This means if the historical return on the stock market is 8% and someone is offering you an investment with a rate of return higher than 8%, be ready for a roller-coaster ride.

If you can’t stomach the daily swings in the stock market, you aren’t going to do well with these other, higher return investments. Granted that many won’t give you an update every day on their value, but odds are you will find out one day that your investment is worthless.

Don’t get greedy and try to earn a super high return thinking there is little to no risk involved. There is.

Long Term Means A Long Time

If you want to be successful in the stock market, you need to invest for the long term. What does this mean? Many think a long time is 5 or 10 years. It’s not. The bare minimum of long term is 10 years. Ideally, it is longer. So you have to invest in the stock market for a long time to get the results. If you can do this, you will see results.

One more note on the long term. This also means to buy some investments and just add to them on a regular basis. You need to hold these specific investments for the long term.

If you are just buying fund ABC today and then selling it for fund XYZ tomorrow, then you aren’t investing for the long term. You are trying to time the market. You can invest this way your entire life and never be successful. You have to pick some solid investments and keep them for the long term.

Everyone Is An Expert

Notice how when the market is hot, everyone is an expert? The cab driver gives you investing advice. Your long-lost uncle gives you investing advice. Heck, even the guy making you a pizza is giving you investing advice.

What do they know? Nothing. Don’t listen to them. No one can predict the market moves over the long term. No one. So just invest in mutual funds or ETFs that track the market and be done with it.

If you are curious, the best streak for beating the market by an expert lasted about 15 years by Bill Miller. Interestingly, he admitted it was more luck than skill.

Finally, even though there are “experts” on TV telling you what to buy or avoid, you can’t listen to them either. They have no clue about your investment goals or needs. So just because they think it is a hot buy, doesn’t mean it is for you.

Ignore them all and just invest in funds that track the market. Over the long term, you will be fine.

Final Thoughts

Overall, these are the common sense mistakes many investors make. It doesn’t matter if they are new to investing or are seasoned. They still make the mistakes because emotions get involved.

Fear and greed are powerful emotions and you have to work to keep them in check when it comes to investing. If you can keep them in check, over the long term you will see your investments grow in value.

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