Watch Out for these Newbie Investment Mistakes

While investing is a means of growing money for the future, the business of investing is not a get rich quick scheme. Having little knowledge, but a willingness to gain financial freedom, many newbie investors make mistakes. Individuals should gain as much knowledge as possible before entering any investment choice. The greater the knowledge base, the fewer the pitfalls faced by investors.

Fee Impact

Whether playing the stock market online, employing the expertise of a stockbroker, financial adviser or merely investing in mutual funds, there are many fees involved. Trading fees run around $500 yearly.
These fees do not include expenses charged monthly for managing the accounts. Mutual funds also carry management fees. Shop around; compare rates charged by various brokerage firms and financial experts. Get quotes for investing in different types of long-term funds. Always know the fees involved.

Understand the Difference between IRA Accounts

While some IRA accounts save on current tax expenses, consider the tax burden involved when liquidating or withdrawing money from these accounts in 20, 30 or more years from now. Taxes will more than likely increase at exponential rates. Individuals put taxed money into a Roth IRA account. Down the road when liquidating the account or making withdrawals, the money is tax-free.

A Diversified Portfolio

“Don’t put all your eggs in one basket,” almost certainly typifies investing. Diversification does not mean investing in two dozen different stocks. If the market fails, most these investments would probably crumble. Rather, invest in various choices including bonds, index funds, IRA accounts, and stocks. This way, if one dips, others continue to grow.

Playing Follow the Leader

Investing in the stock market because of the advice gained by someone else might be risky business. Potential investors must find out how much knowledge the other person has, with how much experience he or she has with stock market investments. Why does this person believe the stock is a good investment? Beware of possible scams. Often, individuals provide tips to increase sales of a particular stock and then the tipster sells his or her shares when the market price increases.

Investing Borrowed Money

Borrowing money for investment purposes poses many risks. Getting loans in hopes of getting a quick return on a stock investment is a recipe for disaster. Have a plan in mind for loan repayment if the investment bombs. Some gain large amounts of money for long-term investments. However, consider the interest rate involved with a loan and the rates applied to investment growth. Decide if this method costs more money in the end.

Timing the Market

This tactic involves buying and selling stocks based on predicting market turning points. Experts claim these types of investors must be accurate 82% of the time just to match returns. Wealthy men, the likes of Peter Lynch and Warren Buffett prefer to invest and sit tight method, which follows the advice presented by many. Timing the market does not produce returns, but what matters is the time individuals spend in the market that makes the difference.