Daily Gains Letter

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Become a Better Investor by Avoiding These Five Common Mistakes

By for Daily Gains Letter | Aug 12, 2013

Five Common MistakesLet’s face it: investing isn’t easy, and it becomes even more discouraging when investors face losses in their portfolio. To avoid a drawdown in their portfolio, investors should avoid the following five mistakes.

1. Not having an investment plan

Investors should have some sort of plan put together before they even jump into the world of investing and start allocating their portfolio to different investments. Having a plan guides them in what kind of investments they should be making and the risks they should take. An investment plan doesn’t have to be very lengthy; it just needs to explain the investor’s risk appetite, investment horizon, and purpose for investing their funds. Without a plan, an investor may turn into a speculator and take risks that can impact their portfolio significantly.

2. Investing in what you don’t understand

This is a very critical error. Investors need to know how the company operates before they purchase its shares. Keep in mind that this isn’t limited to stocks alone; investors should understand how any investment works before they decide to hold it in their portfolio.

For instance, long-term bonds are more sensitive to interest rates compared to short-term bonds. Investors saving for the long term must consider interest rates before buying bonds.

3. Getting emotionally attached to investments

After the crash in the stock market in 2008 and 2009 and the prior tech boom, one observation should be very apparent: markets tend to swing up and down. Investments that are good for the portfolio now may not be so great in two years. Investors need to realize this and not get emotionally attached … Read More