7 Investment Potholes To Avoid

Becoming a successful investor can be paralleled to becoming a successful and safe driver. For the most part as a driver we have a lot of freedom. We choose the cars we drive and the routes that we take as long as we stay within the guidelines (aka laws) that are setup to protect ourselves and others. Investing is the same. We have the freedom to choose how much to invest, when to invest and where to invest. With this in mind it would be wise to pay attention and follow a few guidelines that help to protect us and our family and give us the best chance to be successful.

1. Putting all your eggs in one basket. The age old advice proves to be the centerpiece of every successful investment plan. When it comes to your financial future there is a large difference between investing and speculating. According to Jerry Miccolis, CFA, CFP®, investing relies on asset allocation which is a methodical, top-down scientific approach.

1. Not having a long-term financial plan. It is hard to know if you have successfully arrived at your destination if you do not know where you are going. Yes, developing a written plan takes time and can be tedious. However, this document will guide you through the ups and downs to ensure you are continually moving toward your goals.

1. Believing the financial media hype. Constantly remind yourself that the media’s job is to entertain and sell the audience. Rely on the media only for keeping up on the general trends.

1. Trusting your emotions instead of your plan. Good decisions are based on good information not on emotion. Speculative investing is gambling, you may get lucky once but the house wins in the end. Trust your written investment policy statement to guide each and every decision.

1. Chasing Performance. Don’t be fooled by the guy at the cocktail party touting his 300% return by day trading. Stick with your long-term investment plan, which was designed with your goals in mind.

1. Allowing the tax tail to wag the dog. Taxes are always a real concerned and should be accounted for in every financial plan. However, be careful to not allow your investment decisions to be swayed by the fact that you will have to pay taxes.

1. Ignoring inflation. Miccolis said it best, “wealth is only meaningful in terms of its purchasing power.” Your investment plan should generate a long-term return that outpaces inflation.