People who are trying today to build or preserve their retirement accounts are frightened as the stock market has produced daily swings large enough to churn just about everyone’s stomach. This situation makes it easy to make serious investment mistakes. Credit markets have tightened such that no credit score is good enough to borrower money. Here you will find some of the worst maneuvers that are often done during this hard economic period.
• Putting all your eggs in one basket
This can probably be considered one the worst investment mistakes. You should know that chasing the sector of the moment is a dangerous game. You must act in the following way: look for a balanced group of investment vehicles that include stocks, bonds, mutual funds and a money market component. You must also remember that diversification does not assure against market loss and there is no guarantee that a diversified portfolio will outperform and undiversified one.
• Don’t freak out
It’s easy to freak out as we watch stock prices fall almost on a daily basis during bear markets like today. Fear kicks in and you may think think, sell now and cut your losses. But you must know that the worst thing to do is sell, hide the money in cash and wait for things to turn around. The reason is that mostly things turn around and all of a sudden you are back in after prices have raced back up. Never act on fear! In the case that you have an investment account that is well diversified and designed with long term objectives in mind, chances are that your portfolio should be left alone.
• Euphoria
It means acting just the opposite of freaking out. During bull markets your portfolio is going through the roof; everything you touch turns to gold, equities are surging and all common sense goes out the window. As the equity markets rise, investors reason that the risk of a significant decline fades away. It means that when the DOW hit 15,000 you could feel the Euphoria on Wall Street. Thus the market becomes riskier, not safer.
• Believing the hype
You will probably agree that there is almost nothing on financial news shows that can help you achieve your goals. News letters offer anything of value very seldom and when they do it is very important to know how to identify them in advance. So, you should spend more time sticking to your investment plan and less time watching financial news shows and reading newsletters.
• Not to have a plan
It is very important to have a personal investment plan with specific goals and objectives. You need a plan no matter what the aim of your money saving is. A plan will help you adhere to a sound long term policy even in the case that current market conditions are unsettling. If you have a good plan and stick to it you should know that it is not near as fun as trying to time and beat the markets, but the point is that it will likely be more profitable in the long run.
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