Halloween is almost here. When you’re passing out candy, you’ll see many “scary” costumes that will probably just make you smile. But in real life, you can easily find some things that truly are frightening – such as bad investment moves.
Here are a few that you’ll want to avoid:
Chasing after “hot” stocks – Many so-called “experts” – not to mention your friends, neighbors, relatives and co-workers – are more than willing to provide you with “tips” on “hot” stocks. But by the time you hear about these stocks, they may already be cooling off – and, in any case, they may not have been appropriate for your needs in the first place.
Investing too aggressively or too conservatively – If you constantly worry about the value of your investment portfolio, and you lose sleep whenever the market drops sharply, you might be taking on too much risk for your own comfort – so you may need to invest somewhat less aggressively.
Conversely, if you invest primarily in conservative, low-yielding investments because you think they will help you avoid losses, you might not achieve the long-term growth potential you need to help you reach your important financial goals, such as a comfortable retirement. When you invest, try to balance your need for growth with your personal tolerance for risk.
Failing to diversify – If you only own one type of financial asset, and a market downturn hits that asset class strongly, your portfolio will likely take a big hit. You can greatly reduce the effects of market volatility – and give yourself more chances for success – by spreading your money among a range of investments. (Keep in mind, though, that diversification can’t always guarantee profits or protect against all losses.)
Paying too much attention to today’s news – Unfortunately, many of the news items of today – or of any day – are more negative than positive. But as an investor, you don’t want to be forced into a “sky-is-falling” mentality, because such a mind-set could lead you to make rash, unwise decisions, such as selling quality investments too soon or staying out of the market altogether. Generally, no single event has truly long-term consequences for investors.
Consider the recent “Brexit” vote – in the immediate aftermath, the markets fell sharply, but just a few weeks later, they hit all-time highs. That won’t happen with every newsworthy occurrence, but historically, the markets have shown resilience. So stay invested and follow a smart, long-term investment strategy that’s suitable for your situation – and look beyond today’s headlines.
Ignoring opportunities – Are you taking full advantage of all the investment opportunities available to you? For example, are you contributing as much as you can afford to your 401(k) or similar employer-sponsored retirement plan? If not, you are underutilizing one of the best retirement savings vehicles around. At a minimum, put in enough to earn your employer’s matching contribution, if one is offered. You won’t always have the chance to participate in this type of tax-advantaged retirement plan – so make the most of it while it’s available.
Halloween usually ends with few tricks and many treats. Steering clear of the scary investment moves described above can help you make steady progress toward your financial objectives.