Preventing Investment Mistakes

Most investment mistakes are caused by basic misunderstandings of the securities market and expectations of performance invalid. The markets move in totally unpredictable cyclical patterns of varying duration and amplitude. To evaluate the performance of two major classes of investment securities should be done separately because they are held for different purposes. Capital investments in the stock market is expected to produce capital gains, income producing investments are expected to generate money.

Losing money on an investment can not result from a failure of the investment, and not all mistakes result in monetary losses. But errors occur most frequently on the jury unduly influenced by emotions such as fear and greed, the observations hindsightful, and short-term market value comparisons with independent data. Your own misconceptions about how securities react to different economic, political and hysterics are the most dangerous enemy.

Master these risks, at least ten to improve the performance of long-term investments:

1. Develop an investment plan. Set realistic goals that considerations of time, risk tolerance and future income --- think about where you go before you started the wrong way. A well thought out plan, there is no need frequent adjustments. A good management plan will be sensitive to the presence of speculation in fashion.

2. Learn to distinguish between decisions on asset allocation and diversification. Asset allocation divides the portfolio between stocks and fixed income securities. Diversification is a strategy that limits the size of individual portfolio holdings in at least three different ways. Neither activity is a hedge, or a timing device on the market. Neither can be done precisely with mutual funds, and both are handled more efficiently, using a cost effective approach based on working Capital Model.

3. Be patient with the plan. Even if the investment is always mentioned in the long term, is rarely treated as such by investors, the media, and financial consultants. Never change direction frequently, and always make gradual rather than drastic adjustments. To short the market value of short-term should not be compared to a portfolio related indices and averages. There is an index that compares with the portfolio, the timing and the sub-divisions have no relationship to the market, the interest rate and economic cycles.

4. Never in love with a warning, especially when the company was once the employer. It is alarming how often accounting and other professionals who refuse to correct the problem resulting from individual portfolios. In addition to the theme of love, this is a willingness to pay the tax issue, which often leads to the gain on Schedule D as a realized loss. Nonprofits, in a class of securities, can not be achieved. One objective is to be established under the plan.

5. Prevent "analysis paralysis" from short-circuit the decision. An overdose of information lead to confusion, hindsight, and the inability to distinguish between research and sales materials --- often the same document. Accent a little close "to the information that an investment strategy and well documented software will support more productive in the long term. Predictors to avoid in the future.

6. Burn, remove it from the Shortcuts window or launch any tricks that supposedly instant stock picking success with minimum effort. Do not allow your portfolio to a mix of mutual funds, index ETFs, partnerships, pennies, hedges, shorts, tires, metals, grains, options, currencies, etc. Consumers 'obsession' with products underlines how Wall Street made it impossible for financial actors to survive without them. Remember: consumers buy products, investors choose bonds.

7. Participation in a seminar on the expected interest rate (IRE) sensitive securities and learn how the proper management of change in their market value --- in either direction. The share of portfolio income should be considered separately from the growth. Bottom line for the change in market value should be predicted and understood, not reacted with fear or greed. The fixed income does not mean fixed price. Few investors realize (in both senses) the possibility that part of your portfolio.

8. Ignore Mother Nature's evil twin daughters, speculation and pessimism. They are with you to purchase at market peaks and panic when prices fall, ignoring the potential of cyclic Momma. Never buy at all time high prices or overload the portfolio with current story stocks. Buy good companies, little by little, lower prices and avoid the typical investor would buy high sell low frustration.

9. Step by calendar year, the idea of market value. Errors involve investment time horizon of more realistic, and / or "apples to oranges comparison" performance. Get Rich Slowly path is a road safer investment that Wall Street is allowed to be overgrown, if not abandoned. Growth of the portfolio is rarely an up arrow and short-term comparisons with unrelated indices, averages or strategies simply produce detours that speed progress away from original portfolio goals.

10. Avoid low cost, ease the confusion, the most popular, ie, in the future, and one-size-fits-all. There are no gifts or things on Wall Street, and the more differs from traditional stock and bonds, the biggest risk that you add to your portfolio. When cheap is the main interest of an investor, who usually gets the prize is worth.

Exacerbate the problems that investors face in managing their investment portfolios is the sensationalism of the media leading the process. Step by calendar year, the idea of market value. Investing is a personal project where individual / family goals and objectives must dictate portfolio structure, strategy and techniques of performance evaluation.