Investing Errors to Avoid

It’s inevitable that if you invest in the stock market, you’ll make mistakes — some of them costly. Learn to avoid the following common blunders, though, to minimize losses: • Not paying off credit card debt before investing. You’ll likely lose more in interest than you gain in stocks. • Investing too conservatively. Long-term investments are likely to grow most rapidly in stocks, so don’t just leave your money in savings accounts, bonds or CDs. • Investing too aggressively. Don’t aim for fast, huge wins via penny stocks, margin investing, day trading or any other risky and speculative venture. It’s safest to aim for steady growth over decades by investing in healthy and growing established companies. • Over- or under-diversifying. If all your eggs are in two or three baskets, you’re exposed to too much risk. But if you have too many baskets to count, then you probably aren’t able to keep up with each company. Owning 10 to 20 stocks is a good range for many people. • Focusing too much on a stock’s price. A “cheap” stock isn’t necessarily a bargain. Penny stocks trading for less than $5 each are often likely to fall. A $200 stock can be a bargain that will grow well for you, and you can always buy just a few shares. • Investing in what you don’t understand. The more familiar you are with how a company works and how well it’s performing, the fewer unpleasant surprises you’ll likely encounter. • Relying on tips. It’s fine to learn from others, but do your research and make your own decisions. • Not tracking your returns. In the long run, you always want to be beating a benchmark such as the S&P 500. If you’re not beating it, you might as well meet it by investing in an index fund. • Impatience. Building great wealth takes time. Don’t expect to get rich quick. Learn more by checking out the “How to Invest” section at fool.com.