Scotia Investments

Investor Education - Ten Mistakes to Avoid

Scotia Investments - Investments

Ten Mistakes To Avoid When You Invest

Everyone has made a mistake at some point in his or her lifetime. In investing, however, some mistakes can be costly. Nevertheless, there are important lessons to be learned from each of these mistakes, and it is vital to ensure that your mistakes are not repeated. Being aware of all possible investment challenges should help you to steer clear of a financial catastrophe. Some of the common pitfalls that you can avoid when investing are:

1. Failing to Make a Plan -

Investors who fail to plan may be on the path to failure and frustration. Creating an investment plan is just as essential as formulating your monthly budget.

2. Procrastinating -

Delaying your decision to invest is a major hindrance to achieving financial prosperity. It is not difficult to see that beginning early provides a distinct advantage, because compounded returns allow your investments to grow quickly. Allowing your investments to be compounded gives your money the chance to work for you. Think of each day that you postpone your investment decision as a fine or penalty. Each passing day deprives you of money that you could be earning, had you invested.

3. Investing Too Early -

If you have money in your savings account and you also owe money on your credit card, you should aim to pay off the credit card debt before investing. Many credit cards have annual interest rates ranging between 40% and 50%. If this debt is not paid off first, it could defeat the purpose of investing if the investment instruments do not yield returns in excess of 50%.

4. Ignoring the Impact of Fees and Taxes -

The fees, expenses and taxes associated with encashing investments, or moving between different investment instruments and/or institutions, can significantly reduce your yields. These items are often excluded from investors' calculations. Factoring the impact of fees and taxes into your investment decisions will reduce the amount of charges you incur, which is associated with investing.

5. Investing for the Short-Term -

Only invest money for the short-term that you will actually need within the short-term. For instance, it is recommended that you invest money that you do not plan to use for the next few years in the stock market. Shorter-term alternatives, such as Premium Bond funds, should be considered if you anticipate that you will need your cash in the near future.

6. Ignoring the Benefits of Pension and Other Tax-free Plans -

Pension and tax-free plans offer rare opportunities to accumulate significant amounts of money. When your company offers a pension plan with an employer-match and you decline to participate, you deny yourself of tax-free benefits. You should take advantage of all tax-advantaged, employer-matched savings/pension programmes.

7. Relying on the Wrong Information Sources -

Investors who rely on reports in the media to influence their investment decisions tend to realize lower yields than those who do their own research. For example, it is not usually wise to buy stocks based on the opinions of friends or acquaintances. Smart investors should carefully practice buying instruments that show the potential for growth, after conducting their own research.

8. Trying to Navigate the Financial World Without Help -

While conducting your own research is recommended, with the variety of complex investment options available to the average person, it is just as important for you to get help in making certain investment decisions that may have short and long-term repercussions.

9. Failing to Diversify -

After determining your personal tolerance for risk, you should try to diversify your portfolio; that is, place your money in various types of investment products. Even if you are not risk-averse, you should not place all your money in a single instrument that may fail at any point in time.

10. Identifying jewelry and Collectibles as Investments -

Although jewelry and antiques are of significant value, it is unlikely that they will be able to provide the same sort of price appreciation as investments in the long-term. It is very hard to imagine the sale of these items providing a steady stream of income for you later on in life.