Find Out How To Steer Clear Of Dumb Investment Mistakes

Intelligent folks occasionally make silly mistakes with regards to investing. Part of the reason for this, I guess, is that a lot of people don't have the time to learn what they really need to know to make good decisions.

Don't Forget to Diversify

The standard stock market return is 10 percent or so, but to earn 10 percent you have to own a broad range of stocks. In other words, you have to diversify.

To make money on the stock market, you need around 15 to 20 stocks in a variety of industries. (I did not just make up these figures; the 15 to 20 number comes from a statistical calculation that several upper-division and graduate finance textbooks explain.)

Have Patience

It's important for investors to have patience. There are going to be many bad years. Many times, one awful year is followed by another bad year. But over time, the good years outnumber the bad.

They compensate for the awful years too. Patient investors who remain in the market in both the good and bad years nearly always do better than those who try to follow every fad or buy last year's hot stock.

Invest Regularly

You might already know about dollar-average investing. As opposed to purchasing a set number of shares at regular intervals, you purchase a regular dollar amount, such as $100. If the share price is $10, you buy ten shares. If the share price is $20, you purchase five shares. If the share price is $5, you acquire twenty shares.

To make dollar-average investing work with individual stocks, you need to dollar-average every single stock. In other words, if you are buying stock in IBM, you need to purchase a set dollar amount of IBM stock each and every month, each quarter, or whatever.

Do not Ignore Investment Expenses

Investment expenses can add up quickly. Small differences in expense ratios, costly investment newsletter subscriptions, internet financial services (such as Quicken Quotes!), and income taxes can very easily subtract hundreds of thousands of dollars from your net worth over a lifetime of investing.

Investment expenses may add up to really big numbers when you realize that you simply could have invested the money and earned interest and dividends for years.

Don't Get Greedy

People today make all sorts of foolish investment choices when they get greedy and pursue returns that are out of line with the average annual returns of the stock market.

If somebody tells you that he has a sure-thing investment or investment technique that pays, say, 15 percent, do not believe it. And, for Pete's sake, don't buy investments on a shell company or investment assistance from that person.

Don't Get Fancy

For many years now, I've made the better part of my living by analyzing complicated investments. Nevertheless, I think that it makes most sense for investors to stick with basic investments: mutual funds, individual shares, government and corporate bonds, etc.

To add to these simple investments, ask an investment specialist about merge companies and financial mergers.

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