Investing, whether it’s for retirement or some other purpose, is complicated. You need to do your homework or you will wind up making some of the most common investing mistakes that many people make.
Lack of diversification
You will have heard the phrase, “putting all your eggs in one basket.” When it comes to investing, that’s one of the most common and one of the worst mistakes you can make.
A perfect example is being over invested in your company’s stock. You might be in love with your company and think it’s going to be successful forever, but even the best companies can hit rough patches or succumb to problems in the overall market. Experts recommend having no more than 10 percent of your total investments in your employer’s stock.
Not taking “free” money
One of the best things about 401(k) plans through an employer is that the employer usually kicks in a little extra money as a ‘match’. As long as you put in a certain amount, the company will put in a certain amount too.
It can be tough to contribute to your retirement when you are young when you don’t make a lot of money and have other responsibilities, such as kids, to pay for. However, it’s imperative that you contribute enough to your 401(k) to get the company match.
It may not seem like a lot of money when it’s just a few hundred dollars. But because of the power of compounding, it can make a huge difference in how much you have in the account when it’s time to retire.
If you are having trouble finding enough in your budget to invest enough in your 401(k) to get the match, try a website such as moneysupermarket.com to find ways to save money on services such as insurance so you can stretch your budget.
Not adjusting or rebalancing your portfolio
Many financial experts advise you to leave your investments alone, but they don’t mean you should never make changes. As certain investments gain and others lose, it can throw your portfolio out of whack, causing you to be overexposed in one area and underexposed in another.
Likewise, as you age and your personal and family situations change, you might want to examine your portfolio and make changes. Financial experts recommend going over your portfolio once a year and making changes as necessary to get your investment mix back to where it’s supposed to be.
Trading too much or trying to time the market
On the other hand, you also don’t want to be too involved in your portfolio and make changes too often.
Unless you are a day trader and are trying to make a living by buying and selling investments, you are probably in it for the long haul. That means you shouldn’t panic during short-term downturns.
Don’t sell good stock just because it’s had a run of bad luck. Likewise, don’t buy a stock whose fundamentals are bad just because the price is low.
Trying to time the market can lead to disaster. If you cash in too early or get back in too late, you can miss out on big gains. If you buy into a downturn, you can incur huge losses as well.
Sam is a writer specializing in financial matters. He contributes his expertise to Money Super Market and other websites.