A recent study from the Chartered Financial Analysts Association offers 12 common investment mistakes that individual investors make today. This association has members who render investment decisions for large investors such as banks and mutual funds.1. Buying investments before first establishing an investment strategy. Not a good idea until you factor in your time horizon, risk tolerance, and available funds.
2. Subjecting yourself to greater risk by buying individual stocks instead of a diversified portfolio.
3. Buying stocks instead of companies. An analysis is mandatory here.
4. Buying too high, known as performance chasing.
5. Selling too low. It's clear that a savvy investor is looking to lessen losses, instead of simply hanging in there.
6. Turning over investments rapidly...or churning. The transaction costs alone can easily deplete investment returns.
7. Acting on tips. Chances are that if you have heard what's going on about a particular security, so has everybody else.
8. Paying loads of dollars in fees and commissions. There are fees and there are fees. Do some spadework first.
9. Avoiding capital gains tax in the face of evidence that an asset should be sold is crazy. Paying the tax means that you have made a wise investment instead of being shortsighted about such a security.
10. Having unrealistic expectations. Just because the S&P 500 generated a double-digit return last year, doesn't mean it will happen again this year. And keep in mind that the number doesn't take into consideration taxes and inflation.
11. Being too quick to act. When faced with an investment loss, people usually panic and failure to stay with their long-term plan.
12. Not understanding risk tolerance. Remember, all investments have some level of risk so you have to understand yours and invest accordingly.
If more than one of the above describes you, then get thee to a financial advisor unless, of course, you are that advisor...and then you are in big trouble.
