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7 Common Investing Do’s and Don’ts

7 Common Investing Do’s and Don’ts

| May 10, 2023

Have you ever noticed that some people seem to have a talent for investing? They make it look easy while the rest of us struggle to figure out where to even begin. The truth is, investing can be intimidating, but it doesn't have to be. With the right knowledge and approach, nearly anyone can build a successful investment portfolio. In this post, we'll share seven popular investing do's and don'ts that can potentially help you get started. From planning your investments to diversifying your portfolio, these tips may be able to help you build the foundation you need to become a confident and successful investor. So, whether you're a seasoned investor or just getting started, let's dive right in and learn more!

DO start with a plan

Before anyone starts investing, it's important to have a clear plan in place. This should include one’s long-term financial goals, risk tolerance, and investment timeline. By starting with a plan, you'll likely be better able to make informed decisions about where to put your money and how much risk you're willing to take on. For example, if your goal is to save for retirement in 30 years, you may want to check with a trusted financial advisor about investing in a mix of stocks and bonds to balance your risk and return.

DON'T invest in something you don't understand

One of the biggest mistakes people can make when it comes to investing is putting their money into something they don't understand. If you're not familiar with a particular investment, consider taking the time to research it so you better understand the risks and potential rewards before putting any money into it. For example, if you're considering investing in a particular company, make sure you understand their business model, financials, and competitive landscape.

DO diversify your portfolio

Diversification is key when it comes to investing. By spreading your money across a range of investments, you can potentially reduce your risk and increase your chances of experiencing positive returns over the long term. This could include investing in stocks, bonds, mutual funds, and other asset classes. For instance, if you invest only in one stock, you're exposed to the risks of that company's performance. However, if you invest in a mix of stocks and bonds, you may be able to better balance your risk and return.

DON'T try to time the market

Trying to time the market is a common mistake that many investors make. The stock market is notoriously difficult to predict, and trying to time your investments based on short-term market trends can be a recipe for disaster. Instead, check with your financial advisor about potentially building a diversified portfolio that you’ll hold for a longer period of time. For example, if you try to sell your investments when the market is down, you might risk locking in losses and missing out on potential gains when the market recovers.

DO think about the fees

Investing fees can eat into one’s returns over time. When choosing investments, consider paying attention to the fees you'll be charged and looking for options that offer low fees and expenses. Over the long term, these small savings can potentially add up to a significant amount of money. For example, if you invest in a mutual fund with high fees, you may end up paying more in fees than you earn in returns.

DON'T panic when the market dips

The stock market is inherently volatile, and it's normal for it to go through ups and downs over time. However, it's important not to panic when the market dips. Remember that market fluctuations are a natural part of the investment process. For example, if the market experiences a sharp drop, check with your financial advisor for next steps and consider resisting the urge to sell your investments in a panic. It might be better to stay focused on your long-term plan and consider adding to your investments at a lower price.

DO invest for the long term

Investing is frequently a long-term game, and the best results sometimes come from holding onto one’s investments for years or even decades. By investing for the long term, you may be able to ride out short-term market fluctuations and give your investments time to grow and compound over time. For example, if you invest $10,000 in a stock that grows at an average annual rate of 8% for 30 years, you could end up with over $100,000. However, if you try to time the market or panic during a market downturn, you might risk missing out on these long-term gains. It’s always wise to talk to a qualified financial advisor about your investing plan and ideas.

Investing can be intimidating, but by potentially keeping these seven do's and don'ts in mind, you may be better able to make informed decisions about your investments. Remember, investing is a journey, not a destination, and the most successful investors tend to be those who are patient, disciplined, and committed to the long term. By starting with a plan, diversifying your portfolio, avoiding market timing, considering fees, staying calm during market downturns, and investing for the long term, you can potentially set yourself up for a successful investing journey.