Top 5 Investment Mistakes

The stock market has made millionaires, as well as create a fair number of homeless people.

A great investment tool, the stock market is a double-edged sword. Playing it safe with your investments, even if within a Roth IRA will land you with mediocre returns.

Taking chances can leave you raking in the proverbial dough or crying the investment blues.

Everyone wants to know what they can do to make more money in the market. Here are the top five investment mistakes you should avoid to give your funds the best chance.

Focusing on the Losses and Not the Gains

It’s human nature to get upset when you lose money, but it becomes a problem if a $100 loss is on your mind more than a $100 gain.

The term for this is loss aversion, and it can lead to very poor decision making. Gains might be protected too much while reckless actions might be taken in an attempt to avoid any further losses.

Not Reading the Fine Print

Mutual fund expenses, management fees and other little fees that are disclosed in the fine print can quickly add up. You don’t want hidden fees to eat away at your earnings.

But that’s exactly what can happen when you don’t take the time to read the fine print and understand all the fees that you will be charged.

If you invest with a 401K, watch out for excess contribution taxes and fees.

Performance Chasing

Short-term returns that look fantastic can be an incredible lure to investors. The problem is that there is no guarantee that those returns will continue looking so attractive.

Even long-term winners can turn out to be massive losers in just a few weeks. The fact is that there is no silver bullet, no mystical holy grail, and no golden boy of investing.

The real secrets to positive investment performance are not secret at all. They are common knowledge and frequently given advice.

Control the expenses, look at the long-term, and focus on stable managers and firms.

Spreading the Wealth Too Much

Diversification is important. It protects your assets in case one fund tanks or one manager turns out to be the next Bernie.

However, there is such a thing as too much diversification. Taking your investments and spreading them out over too many companies will leave you with several investments that are too small to really go anywhere, and too many to properly manage.

Trading Too Often

None of the Forbes top ten investors got where they are through frequent trading. When you buy stock in a company, you are buying a part of that company.

Rather than constantly buying and selling, trying to find that magical goose that will drop a golden egg, buy some stocks and hold them.

Enroll in the company’s dividend reinvestment program, so you can buy more stocks, and then relax as the earnings slowly grow.

While buying and holding stocks is usually a solid investment, constant trading is a gamble that will usually leave you broke and frustrated.

Avoiding these common pitfalls of investing can help you make money in the market. In addition to eliminating frustration, you will also save money in fees and enjoy a better return on your money.

Learn what mistakes to avoid so you can enjoy making a profit in the market, without all the headaches and grief.

David Spader is a freelance writer who normally provides savings accounts reviews over at SavingsAccount.Org.

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