Putting all your eggs in one basket.
Everyone knows this old adage. If you invest all of your assets in only one fund or security and that investment tanks, your portfolio could be scrambled.Instead, consider diversification. While this strategy doesn’t ensure a profit or guarantee you won’t lose money, you can better manage risk by spreading your assets among different investments and asset classes. That includes stocks, bonds and cash instruments.As some assets fall in value, others may rise or hold steady and help offset the losses.
Trying to time the market.
Some investors stay fully invested in stock funds while the stock market is rising, then jump quickly into money market1 or cash equivalents just before stock values begin to fall. For this strategy to work, investors must know precisely when to get out of stocks. And precisely when to buy back into them. Always.If you build a portfolio that meets your long-term goals and considers your risk tolerance, you can stay invested. Even when the market is volatile.
Thinking short term.
Investing for the short-term simply may not give your investments time to potentially grow. This is particularly important if your goal is long-term, such as funding your retirement or college education for your kids. For long-term growth, many investment professionals say it’s essential for your portfolio to include stocks.There may be periods when stock prices fall and your portfolio loses value. But stocks, such as those in the S&P 500, have historically outperformed bonds and cash investments.
Not having clear investment goals.
The adage, “If you don’t know where you are going, you will probably end up somewhere else,” is as true of investing as anything else. Everything from the investment plan to the strategies used, the portfolio design, and even the individual securities can be configured with your life objectives in mind. Too many investors focus on the latest investment fad or on maximizing short-term investment return instead of designing an investment portfolio that has a high probability of achieving their long-term investment objectives.
Focusing on the wrong kind of performance.
There are two timeframes that are important to keep in mind: the short term and everything else. If you are a long-term investor, speculating on performance in the short term can be a recipe for disaster because it can make you second guess your strategy and motivate short-term portfolio modifications. But looking past near-term chatter to the factors that drive long-term performance is a worthy undertaking. If you find yourself looking short term, refocus.