If you make a mistake planning the food for your Super Bowl party, it’s easy enough to run out to the store for more chips and dip. But, if you make a mistake with your investments, the fix may not be so easy. Here are common errors investors should try to avoid.
Running Toward the Wrong Goalposts.
Different goals require different types of investments, so identify your objectives before you choose your asset mix. Investments that generate income can help you save for short-term goals like buying a car. Equity investments with the potential to appreciate over time are appropriate for long-term goals like retirement.
Too Many Players on the Field.
Holding too many different investments can make it hard to monitor them adequately. It also puts you at risk of duplicating investments, which may prevent your portfolio from being adequately diversified.*
Tackling the Wrong Player.
By the time you buy into a “hot” sector, stock values may have already reached their peak. When you chase performance, you may be falling prey to one of the most common investor mistakes. There is no guarantee the stock will continue to appreciate.
Not Having a Game Plan.
Having a plan for selling investments is just as important as having a plan for buying them. Consider setting up specific criteria ahead of time. For example, maybe you’ll consider selling an investment if it loses or gains a certain percentage. Or perhaps you’ll sell if an investment’s performance falls below a benchmark over a designated period of time.
Running Before the Whistle.
Although it’s wise to have criteria for selling an investment when it’s not performing as expected, it’s also important to avoid overreacting when the overall markets experience a downturn. Sometimes, holding on to the ball and waiting for the field to clear is your best play.
* Diversification does not ensure a profit or protect against loss in a declining market.