5 Bad Ways to Invest Money
When it comes to how you invest money there are many ways to go about it. While a lot of time is spent dissecting the best ways to invest, there is often little mention of bad ways to invest money.
Sprinkling your money around like you’re spreading seeds
With all the talk today of diversification, this may seem a little taboo. However, the idea of not putting a little bit in lots of places is nothing new.
Billionaire investor Warren Buffett has been advocatingthis for a while now. As he puts it, “Keep all your eggs in one basket, but watch that basket closely.”
Saying you’re going to throw a little money here and there to see what happens is pretty much a way to protect against ignorance. This is a bad way to invest. You should be confident in where you put your money.
Research then invest in fields you know about, where you are the expert and can tell when a company is going to breakthrough. This is what you want to put your money behind; something you have the conviction for.
Remember if you are buying a company’s stock, you are owning part of that company and this should be looked at as a long-term relationship. The same goes with buying a bond; you want that loan to go to a company that you trust.
There are much better gains to be made by value investing rather than throwing money everywhere, just look at how Buffett made out.
Trying to hit the lotto every time you invest money
We’ve all heard about the people who invested early in a company and happened to become a millionaire from their small investment (think Peter Thiel and Facebook).
Look, if you have the talent to do this, then you are probably wasting your time reading this article.
For the rest of us, this just does not happen, period. There is no reliable way to get rich quick. Investing is a process, and the more you try to get rich quick by it the more you are going to lose money.
There must be careful planning, constant research, and tweaking to your portfolio as you go along.You need to have realistic goals in mind and dedicate your portfolio to asteady return over time. Think long-term to help you avoid making impulsive investments with the hope of a quick return.
Beating the stock market on a daily basis for the everyday investor is too difficult, and will take up more time than it’s worth. Do your due diligence in your investment and then try and move on to the next thing in your life. Checking how your investment is doing every hour will cause unneeded stress and also put you in a short-term mindset.
Don’t view investing like gambling, look into the future and make each investment provide value for you for years to come.
Conforming to what others are doing
Constantly investing in the hottest trend you hear from your friends or on the news will cause you to continually deviate from your plan.This, in turn, will cause you to not have a plan that will have a shot at succeeding.
Often times by the time you hear about the latest and the greatest it is at its peak, and there is only a downhill slide from there.
Also consistently doing this will cause you to undoubtedly hit bubbles and short term fads that will decline shortly. Remember the clamor a year ago about investing in Valeant…look where it’s at now.
You need to have the future in mind when investing and avoid the mindset, like we talked about before, of trying to get rich quick.
Remember, going with the tide while investing is not always the best thing to do.
Feeling a pressure to invest money
Especially for young investors, there is often a feeling of “I need to start investing now.” Whether this is because your friends are doing it, or the constant voice in the back of your head saying “start early” is getting to you, the results can be bad.
You don’t want to invest until you are ready…until you have a goal, plan in mind, and time to research what you are going to invest in to reach that goal.
You want to start investing early on to see the benefits of compounding returns which will lead to much higher growth. This is very true, but a month here or there is not going to make or break your retirement.
Investing is a life-long activity. You do not want to rush into an investment you are not comfortable with. Don’t take this as saying stay away from risky investments. A risk is not necessarily a bad thing. But, even with risky investments you want to have your reasoning why you think it will work out and not merely throw money away.
Take your time when investing and be patient enough to invest at the right time when your investment will grow the most. For instance, with P/E ratios at high levels and stock considered to be overpriced at the moment, it may be best to hold off investing equities for a while.
Not following through with your investment plan
Everyone should enter the year with a plan for investing. Whether it’s the same plan as always or a new approach, you want to have a structure to your investments. As we approach the mid-summer months, this is not a time to give up and start anew.No one knows where the markets will be around the holidays so your best bet is to stick to the plan.
Trust the research you made and be observant for opportunities you can take to tweak your plan along the way. There does not need to be complete rigidity with staying the course, but you also don’t want to make the mistake of doing an 180 and as a result make no gains this year.
If you are to do anything, revisit your plan and dig into it again. Check out what analysts are saying and see if your past research holds up.
With the ups and downs we have seen this year in the markets, there is a pretty good chance the analysts will be saying the same thing and you should see your plan through.