The 7 Deadly Sins of Investing

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There are a few investing errors that many people make — mistakes that are detrimental to their overall investment strategies. Here are the Deadly Sins of Investing that you should avoid…

  1. Not taking your goals into account

Make sure that the investments in your account and their risk levels reflect what you are trying to accomplish. If retirement is 20 years away, and you have your money sitting in cash or bonds, you may not reach your goals. Conversely, if you plan to buy a house in six months, and you have that money invested in the stock market, you might lose your money and not be able to recover the loss in time to buy a home.

  1. Basing your investment strategy on someone else’s risk tolerance

You wouldn’t buy shoes based on someone else’s shoe size, would you? So why would you copy your friend’s portfolio holdings without taking into account your own goals and risk tolerance?

  1. Making too many short-term moves with your long-term money

While buying and selling stock can be fun, it should be done with money that is not intended for your long-term goals. If you are really set on short-term buying and selling, open an account that is just for “play money” and leave the rest of your “serious money” in well diversified, long-term investments.

  1. Having too much money in one investment

If your income depends on your salary from a company, make sure your investments don’t also depend too heavily on the same company. A good rule of thumb is to have no more than 20% of your investments in any one company’s stock — and ideally closer to 10% or less.

  1. Not knowing what you’re actually invested in

You don’t need to know the exact stocks in the index or mutual fund that you have, but you should have a general idea of what is in your portfolio. If you use a financial advisor to manage assets, and you have no idea what they’re doing with your money, ask him or her to break it down for you in simple terms or, graphs and charts.

  1. Basing investment decisions on the news

You can’t predict what’s going to happen in the market based on what you read in the news. It can’t tell you that the stock market is really going to tank tomorrow, and that you should sell everything and go to cash. Research shows that having a well-diversified portfolio that you leave alone is a better strategy than trying to time the market.

  1. Not saving enough

This is crucial. If you aren’t saving enough, it is going to be really hard to get to where you need to be.

For example, say you make $60,000 a year. If you save 10%, or $500 a month, for the next 30 years, with an average 9% return, you’d have around $900,000 to work with come retirement. If you saved 15% and made the same return for the same time period, you’d end up with around $1.34 million. That’s a big difference!

So make a plan to bump up your savings. You don’t have to go from saving 5% of your income to 15% instantly. You can set up automatic increases of 1% every 6 months until you get there.

A Trump Presidency: Stay True to This Old Adage

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American voters have chosen to bring big change to the White House. But resist doing the same with your long-term investments, they will be fine.

Many investors worldwide began to sell late Tuesday (November 8th U.S. time) as Donald Trump looked set to win the presidency. Stock markets tanked from Asia to Europe, and a similarly steep drop seemed likely when U.S. markets opened.

On the contrary, stocks proved resilient Wednesday morning (November 9th U.S. time), benefiting those who sat on their hands instead of selling immediately.

Elections can mean big, fast short-term swings for stocks and other investments. And emotions tend to run high in times like this, so it’s understandable if you find it hard to stay calm and leave your portfolio alone.

But we have to remember, history has shown that volatility after surprise events always die down. There is no logic or reason to why markets go down after somebody is elected as president. Most of this is due to speculative or irrational investing.

Long-term investments are meant to be held for many years to your retirement and longer. Big swings in the interim are normal and should be expected. Volatility is the price that investors pay in exchange for the higher returns that stocks have historically provided over bonds and other investments.

So rather than changing around your portfolio, focus on your career, hobbies and family, and avoid being overwhelmed with information. This is just one of the many events that will ride out itself.

3 Obvious Ways to Build Wealth

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You don’t have to be a rocket scientist to build wealth. The wealthy understand that while being smart can certainly help you earn money, that doesn’t necessarily mean you’ll build wealth with your earnings.

Likewise, being famous doesn’t necessarily mean you’ll be able to build wealth. Sure, it can help, but there are countless stories of those who earn a ton of money only to watch it disappear seemingly overnight.

So, what are the secrets to building wealth? And, once you build wealth, how do you keep it? The truth is that the “secrets” to building wealth really aren’t secrets at all.

They are simply common sense behaviors that, when practiced with purpose and over a long period of time, are likely to result in a pool full of cash. Let’s take a look at some of these behaviors.

1. Say “no” to debt.

Saying “no” to debt is truly a behavior at the heart of so many wealthy individuals. Why? It has something to do with interest rates.

Student loans, credit cards, personal loans, car loans, and many other types of debt all have interest rates. Some of these rates are higher than others, but one thing is guaranteed: you will pay a lot more money than necessary if you make minimum payments on a loan, and the interest rates will slowly drain any wealth you do have.

Unfortunately, that’s where many people get stuck. They are so used to debt, they think it’s normal and shrug it off as a way of life. Sure, it might be a way of life for some people, but it doesn’t have to be a way of life for you.

The way to get out of debt is to focus your energy on saying “no” to more debt. Make money fast, you might choose to attack your debt even faster than you might initially think possible.

2. Practice discipline and invest for the long-term.

It can be all too easy to get caught up in the hype of this stock or that stock. The media continually reports this or that “new hot stock.” Don’t fall for the trap. It is always better to diversify your investments and not get carried away by the allure of quick wealth.

The number one behavior that inevitably leads to more wealth is staying disciplined. Emotions are very real and very dangerous, and it’s hard to be objective about your money, especially when people around us are talking about doom and gloom as it relates to the economy. Most of your money is invested for the long-term – do not make short-term decisions about your long-term money.

The best way to get market-like returns is not to meddle with your investment mix. If you do, the probability of achieving your financial goals will most likely go down. Predicting where the stock market is headed and making decisions off the prediction is a fool’s game. It requires a crystal ball – and no one has a crystal ball. Stay disciplined.

3. Stay frugal.

It’s human nature for any increase in income to be immediately swallowed by lifestyle improvements, a phenomenon known as ‘lifestyle creep’. Avoid lifestyle creep and build guaranteed increases into your savings plan by changing the way you think about annual raises. The next time you are presented with a raise, challenge yourself to save half of the increase, and ‘creep’ with the other half. This strategy will allow you to pay yourself first, enjoy the fruits of your labor, and build wealth over time.

It’s better to stay frugal, build wealth, and have a firm financial position rather than squander your money on things that you really don’t need – especially over the long-term.