Monday, July 10, 2017

Most Common Investing Mistakes We All do Without Knowing

When it comes to investing in the markets, there are many mistakes that people can make. Some of these can occur without our even realizing it. That's why it's important to pay attention to what's going on in the market. Here are some mistakes that are easy to make.

Reaching For High Yields

Sometimes, stocks that offer a high yield can be good investments. Most dividend payers that are strong investments will tend to have smaller payouts that grow on a regular basis. When a company offers an unusually large yield, there's generally a reason. Perhaps the company used to be a solid business that has run upon some difficult times and seen the price of their stock drop.

Eventually, many of these companies that see their yields go up quickly because of a price drop will have to cut their dividends or even eliminate them altogether. Be sure to look for growing income and growing revenue for safety. 

Ignoring Fees

When investing in individual stocks, there will generally be a fee that goes along with each purchase. If an investor decides to make many small investments, the overall cost of investment will go up. This will lead to lower returns over the long term.

Likewise, mutual funds and exchange traded funds will usually have a management fee. These will tend to be higher for funds that are actively managed, and they will also tend to bring down the overall return unless they beat the market by more than the management fee.

Those who forget to pay attention to fees will not see their portfolios grow as much as they might otherwise. The lost money will tend to go to their brokers rather than their wallets. 

Not Watching Fundamentals

There are many companies that have solid histories both in the US and overseas markets. They might have a nice level of earnings per share and attractive prices. They might have dividend payout ratios that are low with growing revenues and net income. These are great characteristics to look for when choosing a company to buy. 

However, market conditions can change. What was a great investment 10 or 20 years ago might not be so great today. One major example might be
Eastman Kodak. This company was the leader of the pack when it came to cameras and photography accessories.

Then the digital revolution hit. Those who stuck with Kodak to the bitter end really lost a nice chunk of their investments. Those who kept up with the fundamentals of the business would have been able to see the changes taking place. This would have made selling a good idea. 

Selling At The Bottom

When a company is on the downhill slide to extinction is a good time to sell. However, many times, investors will sell good companies just because there is a market correction.

Unless you are in dire need of cash and have no other way to access it, this is a really bad move. It's likely in this instance that you bought at a higher level. You can only realize a loss on stocks when you sell.

As long as the revenue and income can support continued profitable operation over time, it's probably a good idea to hold onto a company. 

Buying At The Top

A comparable mistake to selling at the bottom is buying near the top of a market high. This occurs when there is a great deal of exuberance about the market. People who would never have thought about buying stocks decide to invest at this point. This is a good way to make very little, if any, money.

When the market hits a high, price to earnings ratios tend to get very high. This leads to lower returns over the long run because money is made from buying low and selling at the top.

Warren Buffett gave sage advice when he said to be fearful when other people are greedy and to be greedy when other people are fearful. Many people tend to do the exact opposite.

Not Getting Started

One of the biggest mistakes that people can make when it comes to investing is not getting started at all. Those who do not invest will probably never get beyond the state of living paycheck to paycheck. Investments can grow over time. Savings accounts will not even keep up with investments. The earlier you start investing, the more time you have to see your money grow. 

Investing for the future is an important step to take toward long-term financial independence. There are many mistakes that can lead to problems.
By knowing which mistakes to look out for, it's easier to avoid them so that you can start watching your investments grow.

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