10 Mistakes for Investors to Avoid
by Ryan Hauck | July 23, 2012 12:30 pm
The world of investing can, at times, feel over-saturated with experts expounding lists of investing tips. Just last week InvestorPlace put out its own 5 investing rules you need to follow[1]. But just as important as seeking what steps to take is knowing what moves to avoid.
Last week, investing whiz and FusionIQ CEO Barry Ritholtz posted a list of common mistakes that many investors make[2]. We’ll take a quick look at Ritholtz’s findings, but the full piece — including his suggestions for avoiding these mistakes — can be read here[3].
- High fees are a drag on returns: Even fees that seem low begin to add up over time, especially when you’re dealing with hedge funds, which also charge a percentage on your profit. You’ll often find that these services aren’t even worth the extra cost.
- Reaching for yield: Chasing yield often leads to investing practices a rational trader would never condone. Invest safely, and most likely you’ll ultimately see more money.
- You (and your behavior) are your own worst enemy: There is nothing more dangerous than an emotional investor, but the danger he poses is only to himself. Resist the knee-jerk reaction to buy high and sell low.
- Mutual funds vs. exchange-traded funds: Many people remain in mutual funds, even when similar ETFs with much lower fees are available.
- Asset allocation matters more than stock picking: It might be tempting to try to eke out a fast dollar by finding that magic stock or timing the market perfectly, but many investors miss out just by not having the right mix of stocks and bonds.
- Passive vs. active management: Not only will active managers cost you more, but their attempts to beat their benchmark — an exceedingly difficult task — more often than not actually lead to your money underperforming.
- Not understanding the long cycle: Many investors fail to understand whether they’re investing during a secular bull market or a secular bear market, which can lead to a poor portfolio balance.
- Cognitive errors: It’s a sad evolutionary fact — humans just aren’t wired for investing! Knowing the ways your own brain will mislead you is just as important as managing your emotions.
- Confusing past performance with future potential: Many investors look at a stock and see that it already has gone up 50%, 75%, even 100% — and mistakenly assume that means more growth is on the way.
- When paying fees, get what you pay for: Many people pay professionals to take care of their money — but most are doing so for things they could do themselves.
Read the list in its entirety, as well as how to fix these mistakes, here.[4]
Endnotes:
- 5 investing rules you need to follow: https://investorplace.com/2012/07/the-only-5-investing-rules-you-need-to-follow/
- a list of common mistakes that many investors make: http://www.ritholtz.com/blog/2012/07/investors-10-most-common-mistakes/
- can be read here: http://www.ritholtz.com/blog/2012/07/investors-10-most-common-mistakes/
- Read the list in its entirety, as well as how to fix these mistakes, here.: http://www.ritholtz.com/blog/2012/07/investors-10-most-common-mistakes/
Source URL: https://investorplace.com/2012/07/barry-ritholtzs-10-mistakes-for-investors-to-avoid/