A new year will usually mean a new hope for many people, it also happens in investment world. Many investors wish investment climate will be better this year. However, in order to achieve a high return, one should know how to avoid some pitfalls that may make their money decreases.
Procrastination and Indifference
Having an investment strategy will avoid your investments run on autopilot; if it runs autopilot the best you can reasonably hope for is mediocre performance. Therefore, you need to identify your priorities, analyze your investments and their performance over time, and have a long-term investment strategy to get the best investment result.
Failing to follow a plan
Sticking to your plan is how to win this game, if you are going to cut your plan in the half way, then it is better off than having no plan at all. Therefore, you need to keep yourself away from abandoning it for short-term temptations. If you are altering your financial plan, have a valid, well-thought-out reason, and do your due diligence in checking out the options. Don’t forget that you can always seek for a professional help with a financial plan.
Not Diversifying Your Portfolio
This is may be one of the most popular ways to achieve a safer result from investing. Diversifying means spread your money among different kind of business, such as energy, technology, finance, agriculture, etc.), not just spread your money among different companies. Moreover, within a bond portfolio, it’s important to diversify by issuer, maturity and credit risk. You can also try another smart way such as diversifying among treasury, corporate, and municipal issues, depending on your tax position.
Sometimes people who have good investing skill will rely on their guts, one of those popular guys is Warren buffet, he is able to identify value and pursue it. This is what makes Buffet different from others as he always follows his knowledge and guts, even though it means he has to move against the herds. Therefore, as good investors avoid herd mentality will keep you survive.
Cannot Differentiate Price for Value
In investing, the price is not the same with value, stock prices reflect what people will pay for them which may or may not be rational, while value is what the company is objectively worth, and is generally set by the long-term investor. From this definition, you can decide when will you buy or sell a stock, since a stock may be trading over or under its historic value.