Learn How To Keep From Making Foolish Investing Mistakes - Stock ...

Intelligent men and women sometimes make silly mistakes in terms of investing. Part of the reason for this, I guess, is the fact that a lot of people don?t have the time to learn what they need to know to make excellent decisions.

Do not Forget to Diversify

The average stock market return is 10 percent or so, but to earn 10 percent you need 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 didn?t just make up these figures; the 15 to 20 range comes from a statistical calculation that many 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 great years outnumber the bad.

They compensate for the awful years too. Patient investors who stay in the market in both the good and bad years virtually always do better than people who try to follow every single fad or invest in last year?s hot stock.

Invest Regularly

You might already know about dollar-average investing. Instead of purchasing a set number of stocks at regular intervals, you buy 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 purchase twenty shares.

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

Don?t Ignore Investment Expenses

Investment expenses can add up quickly. Small differences in expense ratios, costly investment newsletter subscriptions, online financial services (including Quicken Quotes!), and income taxes can 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 could have invested the funds and earned interest and dividends for years.

Don?t Get Greedy

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

If an individual tells you that he has a sure-thing investment or investment strategy that pays, say, 15 percent, do not believe it. And, for Pete?s sake, do not buy investments on a shell company or investment advice from that individual.

Do Not Get Fancy

For years now, I?ve made the better part of my living by analyzing complex investments. Nevertheless, I believe that it makes most sense for investors to stick with simple investments: mutual funds, individual stocks and shares, government and corporate bonds, and so on.

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

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Source: http://nasdaqtradingmarket.com/2012/02/04/learn-how-to-keep-from-making-foolish-investing-mistakes/

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