So you finally have money to invest, and you don’t want to screw it up. Here are some surefire ways to make your money disappear that you should avoid at all costs.
1. Getting hoop dreams
I’m sure we’ve all thought at one point, “Man, if I had only invested in [Microsoft, Google, Furbies] before they took off, I could be retired right now, sippin’ on daiquiris in Cancun right now.” And while that’s true, for every tiny company that becomes one of the world’s largest corporations (in the case of Microsoft or Google) or creates a weirdly-creepy fad (Furbies) there are many, many more that fail. It’s no secret or lie that the key to good investing is diversification. Putting all of your money in a small company that you think is going to explode soon is no better than instead putting all your money on a horse with a cute name. So while putting some money behind high-risk startups isn’t a bad idea, you need to spread your money around in order to safely make your money grow.
2. Getting bored
Investing is for the long-term. The idea is to protect the money you’ve earned and make it grow faster than it would in a savings account at your bank. So jumping from investment to investment or security to security is not the way to do it. Trends are constantly coming and going in the investment world, just like in any other sector of society. Just because ____ stocks are jumping up this week doesn’t mean you should switch. Stick to your plans and keep your eye on the long term, not just this month, this year, etc.
3. Getting personal
You need to be able to separate your personal feelings and connections from your investing to a certain extent. Don’t want to invest in a company that drills in nature reserves or operates factories in third-world companies? By all means, you don’t have to. But don’t invest all your money in a company because you work there, or they have giveaways at their stores every Friday that you just love. Your personal feelings won’t make a company gain or lose money, only that company’s finances will. So go with your brain rather than your gut.
4. Getting romantic feelings for an underdog
So you’ve been hanging on to a stock that just keeps losing. You know you should get out, but if you sell that means that loss becomes real, and can’t be undone. So you hold on, hoping the company will recover, and you will be the best friend that stuck it out and just knew that it would make it back to glory. Don’t do this. It’s not a personal insult for you to take your money out of a falling company. When investing, you’ll lose sometimes. You have to accept that and move on, finding the new company that is primed for growth. The average person well sell a stock soon after it gains (to lock in the profit) and hold onto losing stocks unusually long, hoping for a rebound. You should be able to see that this will cost you money both ways in the long run, and should be avoided.