Want to start investing, what are some mistakes that I can avoid?

Question

So I am looking to start investing, both in short term and long term options...
But I want to make sure that I do not make any stupid mistakes when it comes to my money.

What are some mistakes that you have all made? How would I be able to avoid them to ensure a good return on my investments?

Thanks to all!

Answer 1

Take a long, long hard look at the psycology of trading. Just knowing what to do is not enough, you have to manage your greed and fear to be effective, you also have to manage your time, your money and your expenses. There is no Trading 101 that is enough to get you started. I'd suggest that you greatest trading investment should be in quality trading education.

Something that I learned recently which was interesting is that even good traders lose more often than they win but when they win they win much more than they lose. That is tough on a normal mindset.

Answer 2

Number one step:
Build up an emergency reserve fund FIRST!!! And keep it in a very safe vehicle like an FDIC insured bank account or a money market mutual fund. Have it be at least 3 months worth of livings expenses. Do NOT dip into this for funding investments it is a rainy day fund period.

Quick addition to the other comments. Buy no-load mutual funds with a low annual expense ratio (e.g. <= 1%). Vangaurd funds are famous for being cheaper funds (does NOT mean inferior performance).

Also if you are a long-term position holder invest strictly in tax-deferred retirement accounts (IRA, ROTH IRA, ROTH 401(k), 401(k), SEP IRA, etc.). Basically with these types of accounts you do not pay taxes on earnings from interest, capital gains, etc. Depending on the account type and your eligibility you pay some taxes before contributions or upon withdrawals.

There are a lot of websites (investopedia.com, fundadvice.com, yahoo finance, etc. which can help you) and of course reading some books on the subjects.

Basically its not what you make but what you keep. My $0.02

Answer 3

1. as said earlier... get your expenses under control first... live within your means... cut up the credit cards...
2. educate yourself... read all you can... learn how to break down a balance sheet and income statement..... learn to read between the lines in annual reports.
3. familiarize yourself with technical analysis... if for no other reason you can then understand what people mean when they talk about cup-and handle formations, moving averages and other Mumbo-jumbo.... decide if you think it even matters so you can see with clear eyes what people are talking about.
4. DO NOT BUY ANY TIP FAXED TO YOU!!!!!... cannot stress this enough.
5. AVOID PENNY STOCKS and PINK SHEET STOCKS>... at least until you can read a balance sheet and income statement and decide if they are legitimate.
6.do not buy into hype... hype fades and stocks return to fundamentals!
7. do not sell into fear... fear fades and the stock returns to fundamentals!
8. beware of friends with stock tips.....only buy what you personally believe in (if it happens to be the same as your friend thats ok).... only buy if you have a handle on what you own and why... only then will you have the conviction to know if you should double down or sell when the time comes..... cause your "friend" will have forgotten all about the stock and will claim to have sold at the nuclear high and shorted all the way down without telling you until you mentioned it....
9. Only buy a stock if you have an exit plan.... know when and why you will sell it.... re-evaluate those reasons each time the stock reports earnings....update your reasoning as needed by reality... ..
10. put most of your chunk outside your own hands.... give to professionals... (mutual funds)... the amount you personally manage should not represent your nest egg.
11. never get emotionally attached to a stock.... any stock... for any reason.
12. short term needed money must remain safe.. even if you're sure thing stock is down and you really want to own more.... money thats needed for the next 6-12 months must remain safe.... no deviations.
13. always remember your benchmark ... don't compare your cd to the stock market and vice versa... cause your cd only earned 5% and your mutual fund earned 10% doesn't mean the mutual fund was 2x as good.... they are different animals... with different functions.... know those functions and use them accordingly.


anyways those are a few ideas to get you started... cheers.

Answer 4

First, if you want to ensure a return, invest directly in US Treasury bills, notes, & bonds. Everything else is less-sure.


Second, there are no shortcuts. Learning and experience, both in loosing and winning are necessary. The trick is to avoid learning the lesson "I am not a fortune teller or mind-reader" and "The market does not care what I own or at what price I purchased" when you have no time to recover from a disaster. Start young and start small. Seek education and experience mixed with risk instead of a 10-100-1000 bagger.


Third, while you play and learn with a small amount of money, keep saving another small amount of money regularly in low cost, diversified index stock funds (build a SEPARATE nest egg). NEVER mix this money with your play and learn money.

Fourth, don't kid yourself -- It takes money, experience and discipline to make market beating returns over decades of investing. You need a decade of experience in investing and at least one bear market (S&P 500 down at least 15% for at least 6 weeks) under your belt plus at least $100,000 in investable assets to break away from the low cost index fund nest egg approach listed above.

Fifth, the definition of an expert is "an investor who will only tell how they have invested after the fact and can prove it with hard evidence." The definition of a salesman is "anyone who tells you what to invest in today (or tomorrow)."

Answer 5

Sorry, these would not be investments but speculations. Speculation is the commitment of funds in the hope of making a profit from the change in the market price of what has been purchased. It almost always is short term. Investment is the commitment in order to acquire a series of future returns like dividends and interest. One wishes to acquire at a favorable price that may have secondary speculative gains, but that is secondary. I high present value of all future proceeds is the real objective.

Answer 6

Jim,

One of the biggest mistakes that I made when I started to invest was to not get my debt under control. It seemed to me that if I could find a gold mine of an investment, my debt problems would dissolve.

Get your debt under control before you start risking more money. I believe that becoming financially stable is the best first investment that someone can make.

A blog I frequent has an article titled "Top 10 Rookie Investment Mistakes", you might want to check it out!

Here is the link http://www.finance-your-life.com/?p=38

Happy Tuesday!

Answer 7

For people wanting to invest, but don’t know where to invest, they can consider investments in mutual funds. These funds offer a varied investment opportunity for the shareholders who have bought the fund’s shares. They are an effective method of building a varied investment portfolio, or they can augment your existing portfolio with securities chosen by the mutual fund manager. Refer to this guide about detailed explanation of the mutual funds.
http://debts-to-wealth.com/category/Guide-to-Mutual-Funds.html

Answer 8

Keep a sharp eye out for expenses. It's easy to wind up paying a lot just to get and hold the investment.

For mutual funds you want to keep those expenses under 1%, plus do not paid any load charges (commissions to buy into the mutual fund).

And always look to the future, not the past. Past performance is nice to know, but if that industry is in for trouble ahead, past performace won't mean squat.

Answer 9

Hi, i recommand you a good and basic tutorial for investing. it covers all Issues related to your Investing and everything around it.

http://www.tutorialforyou.net/investing/

wish it will help you.

Answer 10

The biggest mistake is over-leveraging.

The second mistake is not to spot trends.

3rd. trading against the trend or when there's no clear trend.