1. Not setting clear goals.
What are you saving for and how much do you need? Are you saving for retirement? A house? A car? Will you need to use your money in five, ten or 25 years? You need to know these things before you invest. Then you can choose investments that best fit your situation. For instance, if you will need your money soon, you may want to choose safer investments. Why? You won't have time to make up any losses.
2. Putting all your money in one type of investment.
A mix of investments often works better. If one loses, another may gain. Remember, some businesses have cycles. Some may do well in the summer, some in winter. Some will react to world events, some may not. If you put all your money in a single investment (no matter how good it seems) and something goes wrong, you could lose all your money.
Some people avoid this mistake by investing in mutual funds or exchange-traded funds (ETFs). With these products, your money goes into a mix of investments. And over time, it's your investment mix that most affects your results. That's why many advisers tell investors to avoid putting more than 5-10% of their money in any one investment.
3. Investing in things you don't understand.
If you don't understand how an investment provides a return to you, or how a business is organized, or how it makes money, you need to either learn more about it or consider avoiding it. Also make sure you understand what can make the price of an investment rise and fall. This will help you decide whether an investment is a good choice for you. To learn more, start by reading the annual report or prospectus.
4. Taking chances you can't live with.
Don't invest in something that makes you lose sleep at night from worry. Most people are better with investments that they don't need to watch every day. If you're going to take chances, make sure you only invest money you can afford to lose.
5. Forgetting about your investing costs.
There are always costs when you invest. In some cases, you pay fees. For instance, you . Mutual funds charge yearly fees to cover the cost of managing your money. These fees can vary from fund to fund. So before you buy, make sure you understand and compare those costs. It will help you make better investment choices.
Also, don't forget there can be a cost to playing it too safe when you invest. If you keep all your savings in a bank account, for instance, you won't lose money. But you also give up the chance to grow your money faster. That can cost you money in a different way.
6. Following hot tips or rumours.
What looks like great information may just be noise. Make sure you know and trust the source. If you're looking for advice, get it from an expert. That's doing your homework.
- Other common investing mistakes include:
- getting too comfortable with a good investment
- hanging on too long to a bad investment
- trying to rush results
- trying to time the market
- chasing success.
about these and other common investing mistakes. Even advanced investors sometimes fall into these traps.
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Remember: You can avoid all of these common mistakes
If you set clear goals and do your homework carefully, you'll have a better chance of success.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.