Whatever your age, you are doing some amount of investing through your lifetime. While doing that you might be committing, what the author calls the 7 deadly sins of investing. He’s convinced that each one of us is committing at least one or more of these sins. Read on to see what the author means by the sins of investing. Team RetyrSmart
Which investing sins are you guilty of?
Let’s take a look at the seven deadly sins of investing
1. Being Clueless About Diversification
Being poorly diversified means putting most or all your money into a single investment or even investment class.You shouldn’t do that even with broad investment categories, like stocks. Even though they may represent the majority of your portfolio, you still need to hold at least some money in bonds and cash.
2. Holding Way Too Much Cash
We all need to have a certain amount of cash. At a minimum, you need to have cash sitting in an emergency fund for unexpected expenses or short-term income disruptions. You also need to have some cash to take advantage of any investment opportunities that may arise. But at the same time, it’s completely counterproductive to have too much sitting in cash.
Having too much cash in your investment portfolio even has a name: cash drag. It’s when too much money is sitting in non-investments, providing little or no return on your money.
3. Paying Excessive Fees
The problem with fees is they reduce your return on investment. If you’re paying 2% per year in investment fees, a 10% return on your portfolio will be reduced down to 8%.
That’s why investment fees matter.
One of the investment areas were fees are a big problem is when you’re working with a financial advisor. The typical fee you’re paying to the advisor is anywhere between 1% and 3% of your account value. But that’s just the fee you pay to your advisor. There may also be trading commissions as well as internal expenses associated with funds you don’t even see.
If you’re working with a financial advisor a question you must ask is what is my all-in cost for working with you? If the advisor can’t or won’t answer your question, you need to find a new advisor.
4. Tacky Tax Planning
This is about minimizing the tax burden from your investing activities. The best way to do this is by holding as much money as possible in tax-sheltered retirement plans.
In each of these plans, your investment income accumulates on a tax-deferred basis. No tax will do until you reach retirement, and you begin making withdrawals.
5. Day Trader Syndrome
This is one of the biggest investment delusions around, and it’s surprisingly popular. After all, who wouldn’t be drawn by the idea of opening a brokerage account, sitting at your computer, and making hundreds or thousands of dollars each day by moving in and out of stocks?
The reality is day trading is the investment equivalent of buying lottery tickets. At least 90% to 95% of people who do it lose money. That probably explains why few of us know anyone who day trades for a living.
Yes, there are people who make money day trading. But they’re professionals who only arrived to that place after years of practice.
6. Letting Headlines Derail You
Let’s start with the real purpose of the media: it’s to sell advertising. All those catchy – and sometimes shocking – headlines are designed to get your attention. The more people who click through, the higher the potential advertising revenue is. In most cases, the headline you’re reading has no effect on your life. But if it gets you to go to the article, it’s accomplished its mission.
Media sensationalism can cause you to panic and overreact, even to “news” that doesn’t apply to you. Don’t let news stories get you to change your investment strategy. You need to think long term, and ignore the short-term disturbances.
7. Debt Denial
There’s no way to invest for your future if you’re drowning in debt. The problem for many people is they don’t know how bad their debt situation is. They may not even know how much they owe.
That shouldn’t be you. If you have debt, take some time and add it all up so you’ll know exactly how much you owe, and how much you’re paying in interest. But at the same time, you should have a plan in place for how you’re going to pay it off.
Until you get to that point, you have no business investing. It will do you little good to invest and earn 10% if you’re paying 20% or more on credit cards. The math is totally against you.
Seriously consider if you’re committing any of these seven deadly investing sins. And if you are, don’t panic. Each one can be remedied, insuring better investment results in the future.