Common mistakes while investing in financial and stock markets - tips for financial planning and investment
Probably you may be curious and wondering about the title of this article. The main idea that I want to convey in this article is that many common life principles don’t apply to the world of investing. The short-run performance of the stock market is random, unpredictable, and for most people , nerve wracking. If you hear someone saying that he knows how any given stock is going to perform in the next few years, he is either lying or self-delusional. Nobody can predict the volatile market. However, over long term , stock market performance has been rather consistent. For instance, there are more than 200 years of US stock market history and the long-term trend is up. Stocks over the long-run offer the greatest potential return of any investment, but the short-run roller-coaster rides can be a nightmare for those who don’t understand the market and lack a sound investment plan to cope with it.
OK, now let’s see how to become unsuccessful in investment and become poorer.
1. Strive for the best: You might have also heard about the saying “don’t settle for the average”. if you apply the above principle to investment, you are destined to be poorer. As an investor, you can be well above the average by settling for slightly less than the index returns.
2. Listen to your heart: This is the worst thing you could do while investing your money. People become very emotional when they see the short-term trends. Last year, I read news that a German billionaire ($9.2 billion in 2008) committed suicide when he lost 400 million that he invested in Volkswagen during the 2010 financial crisis.
3. Ask an Expert: Although it helps sometimes to pay for an expert in investing, you may get less than you pay for. When you buy mutual funds there are customer services that you can call and you could get help from for almost free. There are lots of financial investment help forums and free advice online available. In addition if you read good investment books, control your emotions and start investment early you won’t need any expert to manage your finances. Another strategy, instead of hiring an expert, or spending a lot of time trying to decide which stocks or funds are likely to be top performers , just invest in index funds and forget about it. For example, Vanguard’s Index 500 seeks to replicate the return of the S&P 500.
4. If there is a crisis take action: Trying to fix a perceived investment crisis by taking action is usually a recipe for poor returns
5. History repeats itself: Using yesterday’s results to pick tomorrow’s high-performing investments is another losing strategy.
Investing has a whole new set of rules, and if we are to be successful, we need to play by these new rules. It is beyond the scope of this article to list all the investment rules. However, on the right and in the end of this article, you could see links to some of the best books in Investment. These books are written by the 'Experts' in the field. For instance, John Bogle founded the first index for individual investors, called the Vanguard 500.
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