This “8 Bad investing Habits You Need To Stop Doing” post details the investing habits that can hurt people financially. The author created this post to provide readers tips that they can do to avoid displaying bad investing habits and, in turn, bad investing decisions.
We all have our own habits. Whether these are good or bad habits, they make us who we are and what we are not. Good habits are the ones that provide bountiful benefits, whatever these benefits may be. On the other hand, bad habits offer the polar opposite.
Good and bad habits exist everywhere and bad investing habits are no exception. It is true that today’s stock market is a roller coaster ride. No wonder that a lot of people are fleeing to more safe investments. But there’s one consistent fact about a fluctuating stock market. It is during this time that investors show their bad investing habits. As I stated earlier, these habits tend to provide negative results.
8 Bad investing Habits You Need To Stop Doing
1. Buying high and selling low
This is commonly seen when the stock market is tanking so bad. A lot of people take their investments out because the market is falling. As a result, these people take a loss, which they aren’t fond of. This is not the end of the story.
When the market picks up, they go back and buy shares. What these people are doing is selling when share prices are low and buying when share prices are high. It is a better strategy, for most investors, to buy and hold the investments for longer term to get better results. I have yet to find an example that shows “buying high, selling low” strategy is a good investment strategy.
2. investing with emotions
investing is not for the faint of heart. With so much commotion going on in the stock market, many people tend to invest or react to the stock market based on their emotions. I was one of those people who could easily change minds because of the unfortunate stock market situation.
According to CNBC, even the most tempered investors might be tempted to decide irrationally. When the stock market declines, you just have to remain calm and collected. The calmer you are, the better your thoughts and investments decisions will be.
3. Borrowing from the Individual Retirement Accounts (IRAs)
When in need of funds, a lot of people will borrow from their IRAs. People may think that it’s a good idea to borrow money from their retirement accounts because they can easily address their needs; however, this practice is not ideal.
Borrowing, whether big or small amounts, can and will hurt you in long haul. If you are under 59.5 years old and borrow money, you will pay penalty, subject to few exclusions, for taking out money prior to the minimum age for distribution. Borrowing money means less money in your retirement accounts. The less money in your account, the less interest you earn. The less interest you earn, the less money you will have in the future.
4. Listening to the gurus
Investment gurus have always been great sources of investment ideas and opinions. Having said that, always be cautioned when making decisions based on these gurus’ opinions. Remember that a person’s situation may be totally different from another person. This only means that you shouldn’t readily follow their opinions.
It is best to sit down, assess the situation, and see if their opinions will benefit you. In addition, should you need financial assistance or advice, you can always hire professional financial planners who can help you assess your investment needs or goals.
5. Not rebalancing portfolio
Take time to re-evaluate and re-balance your investment portfolio. Don’t just invest and forget about it. Remember companies’ performances change and so do their business models, strategy, directions, among others. Rebalance your portfolio to make sure your investments are aligned or still aligned with your goal.
Re-evaluate companies or funds in your portfolio to ensure that you still have the same reasons for buying those company shares or funds in the first place. If your perceptions have changed, then, it may be time to re-consider selling them and place the money somewhere else.
According to Greg S. Fisher, you can think of rebalancing as a way to improve your risk investment-adjusted returns over the long term. You can also rebalance your portfolio based on your age.
A portfolio mix for a person who’s in 20s or 30s should be different than a person who is retired or about to retire. Why? Because young investors have more time for their money to earn interests and they can take more risks; however, the same scenario cannot be stated for those who are retiring or retired already.
6. Disregarding the fees
Do you know the fees associated with the funds you bought? If not, you should check and see how much they charge. When buying investment funds, always check the fees and not just the stellar returns these funds had in the past.
For example, if the historical return for a XXXXXX fund were 10% a year and the annual fee were 5%, then, you would only be making 5% in return not the 10%. You may think that fees are too small but if you add and compound them for a number of years, you will see that these fees are just way too much.
7. Trading too many times
A lot of people tend to trade too many times. People trade for different reasons and at different times. Always remember that every trading that’s done comes with a fee or charge. It is always best to have a well-structured, balanced portfolio to begin with to avoid trading often than when you should.
The reality is, many of those who trade often are those who are easily swayed by the volatility in the markets. Unless you are faced with life changing decisions that you don’t have a control of, it is best to minimize your trading activities. Remember that the more trades you do, the more fees you pay.
8. Putting investment in one basket
Investment doesn’t necessarily just cover stock market. There are other investments that you can get your hands into. There are real estate, CDs, business ventures, among others. Never put all your funds in one type of investment because you’ll never know when it’s going to go bad. Always diversify your portfolio to reduce your investment risks.
Even with investing in the stock market, never put all your funds in one sector of the market. Many people put all their money in one sector because they feel comfortable with a particular sector but emotions shouldn’t always mix with investing decisions. It is best to diversify to reduce investment risk. It’s is best to spread the risks over many sectors.
Investment is truly not for the faint of heart. One of the best ways to do well in investing is to get a tight grip of those bad habits that may seem harmless, at first. Always remember that a mistake, even a small one, could make a difference in your investment now and in the future. People will always have bad habits and it’s just what makes human a human. But don’t let those bad investing habits cost you a fortune and your future.
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