Five Common Mistakes in Investing

Investing in stocks or other investment options can be a risky business. Even so, many still consider it because of the high profit you may earn, short term or long term. To ensure success, here are seven common mistakes in investing you need to steer clear from:

Common Mistake in Investing 1: Having no plan. No matter what kind of investment option you are venturing into, you can go to battle blindsided. You need a plan and you need to carefully work on it. Your personal investment policy or plan should address your goals and objectives, the risks involved, the appropriate bench marks, diversification and asset allocation. Through a plan, you can adhere to a sound long term policy even with unsettling market conditions.

Common Mistake in Investing 2: Focusing on short term success. It is not a good idea to only consider short term success in investing. You need to broaden your time horizon. As we all know, the business or stock market is most often volatile. This means if you set your expectations following a short term plan, you may encounter problems. Try to look at long term success so you can take time to focus on the performance levels of the companies you are investing in.

Common Mistake in Investing 3: Giving too much attention to financial media. Think about it ñ there is really nothing on financial news that can really help you achieve your goals. Only a few newsletters can actually be of value to you and even so, itís hard to identify them in advance. Don’t rely too much on these financial shows and newsletters. Just focus on creating and sticking with your investment policy or plan.

Common Mistake in Investing 4: Being overconfident to the manager’s ability. According to studies, managers usually underperform their benchmarks. Since there is no way to select managers who outperform in advance, and only a few people can profitably time the market on a long term note, it is time to think twice.

Common Mistake in Investing 5: Not rebalancing. Rebalancing may be difficult, but it is important. It is the process of actually returning your portfolio over to target asset allocation. Since you need to sell the asset class that seems to be performing well and to buy more from your worst performing asset classes, many are hesitant to do this. So if you let your portfolio drift with market returns, you can guarantee that these asset classes will be overweighed at market peaks and underweighed at market lows. What you need to do is to rebalance religiously. This way, you can achieve long term rewards.

Alex is a freelance journalist and financial blogger. He loves to write about football and jazz but spends most of his days writing about mortgages, credit cards and payday loans.