Most of us are fairly clueless when it comes to the ins and
outs of investing. We usually recognize the need for prudent investing as a way
to feather our retirement nest eggs. But when we aren’t sure exactly how it all
works and what’s our best course of action, we tend to hesitate.
This hesitation and uncertainty can leave us staring at our
retirement and realizing we’re not prepared. When we do take the plunge and try
our hands at investing, too many of us make common rookie mistakes. To keep that from happening to you,
here are some common newbie mistakes you can avoid.
 |
| source |
1. Don’t overpay for an asset with an underwater
cash flow
When it comes to investing, the bottom line is the bottom
line. Whatever you invest in or purchase is worth an amount equal to the
discounted cash flow it produces. It is the same as a business: what matters is
the cash generated, commonly called the bottom line. You want money coming into
your account, not hemorrhaging out of it.
2. Plan, plan and then plan some more
Make certain you have a good plan in hand before getting into
any investment situation. Your plan should include a solid statement of your
goals and your objectives. Read investmentbooks to get the lay of the land. Research the risks you will face
and how to recognize a growing risk. Make certain your plan includes a
well-diversified portfolio. Remember the adage: don’t put all your eggs in one
basket.
3. Look to the future, not the past
New investors tend to make this mistake
all too frequently: looking at an asset’s past performance and assuming that it
will continue performing in that manner. If this was an actual indicator of
future performance, every investor would be rich today. Looking to an asset’s
past performance can isolate trends in performance, but it isn’t a crystal ball
that will forecast future gains or losses for you.
4. Relax
Enthusiasm about investing can morph into an obsession if you
allow it. You should expect to have a bit of anxiety about risking your money
but take steps to make certain it doesn’t become an overwhelming obsession. Too
often, first-time investors allow concern over the performance of their
portfolio to become the driving factor in their lives. Understand that investments have ups and downs; watch over your
portfolio with a discerning eye and act accordingly to ensure your investments
are working for your benefit without usurping your life.
5. Know when to hold ‘em or fold ‘em
The hardest decision most new investors face is when to sell
their assets and when to hold on to them. Most find themselves tempted to hold
on to rising assets rather than harvesting some of the gains while they can. It
is tempting to hold on to it, hoping that it will rise just a little bit more.
Most experts will advise investors to listen to the facts and figures that
define your investments, not your emotions and feelings about where your
investment may be heading.