Investors Should Avoid These Five Mistakes!
Nothing beats the market like financial intelligence and common sense. The current environment — laden with low dividends, poor returns and nothing short of a new scandalous credo that too many companies have adopted — makes these rules particularly critical to your success. Avoiding these five common mistakes will help you develop the self-confidence, order, and organization you need to become a more comfortable, successful investor.
1. Don’t Miss Out on Dividends or Interest – Conservative investors must focus laser-like on fixed-income interest and dividends from common stocks. No matter what hype you read in the media or hear from brokers, stocks in general are not cheap — far from it. When all you get from the average big company stock is a 1.5% yield, and you pay nearly 30 times earnings in the process, you are not looking at bargains. Companies that pay a regular dividend offer a layer of investment insurance that protects against stock price fluctuations. When you buy stocks, remember to invest in a business positioned to throw off cash to you for many years ahead. That’s how you make, keep, and compound your money.
2. Ditch the Day-Trader Mentality – If you want to properly prepare for your retirement and do so in comfort, please commit the preceding to memory. Never mess with your mix. Do not be an interest-rate forecaster or a trader. Once you have your portfolio mix correctly in place, leave it alone except for occasional tinkering and pruning. You never want to hack and slash. Portfolio management for long-term conservative investors is about ebb and flow — slow and steady and patient.
Remember, successful investing is counterintuitive. For example, most investors equate successful investing with trading activity, when just the reverse is true. Trading leads to fees that take out the exact thing that you are trying to keep in your portfolio. Cash and cash flow.
3. Avoid Risk – Savvy investors never compromise principal in a reach for marginally higher long-term returns. They know that the first rule of investing is not to lose your capital. And the second rule is to never forget the first rule. You would be astounded at how many investors will put 100% of their capital at risk based on cocktail talk rather than invest intelligently and safely. You will always be a winner by gauging risk first. Be good to your capital, and it will be good to you for a lifetime. Most retired and soon-to-be-retired investors will not get a second chance. Your earnings days are over. To be a winner, put the odds on your side every time you invest by appraising risk well before you give even the slightest look to reward. You’ll be amazed at how your investment comfort level will grow.
4. De-emphasize Past Performance – Now here’s a truly dangerous yet frequently practiced formula. The mutual fund industry knows that the number-one factor most investors look at before selecting a mutual fund is past performance, and most recent past performance at that.
Performance ratings are worthless. If we don’t know by now that what worked yesterday, may not be viable today, we should get off this train. If you look at a security today, and see that the 5- and 10-year returns look great, don’t assume they are going to do the same going forward.
What matters is investing in dividend-paying stocks or value stocks of one form or another and invest for cash flow.
5. Don’t be Trendy. Focus on Value. – Shaky investors are always ripe for the latest growth fad packaged in hard-sell hype. In the recent past, it was high-tech and IPOs. Look what happened there. A good rule is that if you are hearing a lot on a certain subject or being pitched regularly on a certain theme, forget it — the cat is out of the bag. You’re much better served with an eye to the long term and a few value stocks in your portfolio.
There are some serious dust-covered values with bright red sales tags on today’s investment shelf. Value is the conservative approach to buying safe, solid companies that are undervalued for no reason other than overreaction to current market conditions. Value can be a relative steal and offer the serious profits that every investor dreams about.
There you have it — five mistakes every investor should avoid. If you want to get back to a time where you could fall asleep without thinking about how your investments are doing, then memorize these five investment traps and choose the better options outlined here. You’re guaranteed to be a more confident, organized, and successful investor.
