With the facility of self-direct trading, and the continued drama of using robo-advisors, a question always arises about whether you should do your own investing. Some disciplined and well-informed individuals actually do a great job managing their investments. But for the majority, they either do no not invest or procrastinate seeking professional advice.
Face it, investing isn’t just for experts. It’s for everyone. Regardless of how much money you have, though, it can be easy to fall into investment traps, making process mistakes that can cost you serious money. These are some major areas to avoid.
Some investors like to invest themselves. At least that is what they want to believe. Others do find it easier to get help from a professional. Since personal finance is personal, it can look different among every individual. If you’re an investor looking for help, it might make sense to consult with a financial advisor.
If you are looking to get started on your investing journey, here are some things you should never do with your investments.
Comparing yourself to others
It’s easy to look at what others are doing and feel defeated when you aren’t at the same level. But investing is personal. No one has your income, expenses, job, personal responsibilities, and other factors. All of those play a part in how your investments will perform.
One of the biggest mistakes is trying to compare your investment returns to someone else and trying to get the same returns without knowing all of the surrounding information. There are a lot of factors that determine how much you can make in the stock market, including when you start investing, how long you hold, and the amount you start with.
Making emotional decisions
Investing can be personal but remember that a lot of what you’re doing is rooted in making business moves. You’re making long-term investments, but it’s easy to get emotional when an investment value falls, or the market falls, and you lose money in the short term. Markets are volatile and go up and down. You are invested for the long term and should not be swayed by short term returns. Avoid making rash decisions as much as possible and skip becoming emotional when things don’t go as planned.
The more you pay attention to business news headlines and your account balance, the more likely you are to act on emotion. Turn off the TV and check your accounts on a less frequent cycle, like once per month. Educating yourself on investing and economic cycles will also help you to feel confident about your investments and ignore all of the noise.
Timing the market
It’s common to hear the advice of buy low, sell high. But how do you know when low is really low enough to get in on the action? Some investors try to time the market by buying and selling their investments at what seem like opportune moments. The problem with trying to time the market is that identifying the perfect time is nearly impossible and the perfect time may never arrive.
Attempting to time the market to avoid a loss and jump back in at the perfect time is nearly impossible to do consistently. This is because like a slot machine you have to get three things right to win: When to get out, what to buy, and when to get back in. Missing out on just one of those can have a drastic impact on your portfolio.
Rather than spend time trying to time the market, try to put a fixed dollar amount into your investment accounts regularly, like monthly. Ignore whatever the markets are doing at that moment. Committing to this type of investing, called dollar cost averaging, means you won’t act on impulse when it comes to where your money goes.
Ignoring other obligations
Investing should be made with money that isn’t needed for anything else, like expenses and debt. While it’s important to invest as soon as you can, putting off other responsibilities won’t help your investments now or in the long run.
Without a dedicated emergency fund, you might be forced to sell investments at a loss when something unexpected happens to try and cover the expense. If you have high-interest credit card debt, it’s likely the interest you are paying is double what an investment portfolio would generate for you in a given year. It’s nice to put as much extra cash towards your investments as you can to build wealth, but the sooner you pay off debt, the more money you’ll have to invest.
Distributions overs rollovers
When you move jobs, your retirement plan doesn’t necessarily move with you, at least not right away. You’ll have to contact the manager of your old employer’s plan to work out a rollover to move your retirement plan into a new account. It’s tedious work but usually worth it because the alternative could be expensive.
When you move from one job to another, you have the option of taking your money with you encouraging a rollover, with no penalty versus withdrawing the money and paying taxes and a potential penalty.
Missing employer matches
If you aren’t sure whether your employer offers a match on your retirement contributions, you might be missing out on maximizing your investments. Many employers offer one, but many people don’t take advantage of it, leaving free money behind.
The match from your employer is likely much higher than any return that you would get from the market that year. For example, a dollar-for-dollar match is an instant 100 percent return on your contribution. It would take years for your investment portfolio to grow that much.
Ask your employer about contribution matches and how you can start taking advantage of them. If your company doesn’t offer one, your inquiry might be the spark that lights the fire to start employer matching as an employee benefit.
Not investing your investments
It’s a big step to open an investment account. But if you aren’t actually investing that money, then it’s not going to grow and instead will just sit around as cash. There is a difference between your investing accounts and your actual investments. You’ll want to avoid the mistake of opening an account, depositing money, and letting that money sit without putting it to work by selecting an investment.
We’ve had clients that did go through with setting up and even contributing to an investment account but then didn’t actually select investments for that money. Remember to make investment selection part of your process. Reviewing your portfolio holdings and performance monthly is also a great practice that will allow you to catch oversights like this quickly.
The bottom line
Investing can seem scary, especially if you don’t know how to start and you have a lot of experts telling you what to do. But making the most of your investments requires a bit of legwork and creating healthy investment habits.
Remember you’re working towards making the most of your investments, so try to avoid acting on emotions. Once you’ve made the leap to opening an account and even setting up contributions, make sure your money is working hard for you and check on your accounts regularly, whether it’s monthly, quarterly, or annually.
If you’re unsure if you’re making the right choices, consider reaching out to a financial life planner to review your investments with you. After all, what we will tell you is that its only advice to do with as you choose. No strings attached. Realizing your strengths and where you could benefit from assistance is a prudent way of Keeping Life Current.
