With the proliferation of the Internet and continued expansion of online investment tools, the role of a certified investment advisor is now of crucial importance. Personal investors have access to more information than they ever have before, but wading through the data to find that path to success still requires the eye of a trained professional. Given the daunting amount of different investment advice, options, funds, stocks, bonds, annuities, and timelines available to investors planning for your future is intimidating to say the least. When you take the inherent danger that follows bad investments into consideration , it quickly becomes clear your retirement isn’t worth that risk, and should instead be left to a professional. The following five points are some of the more common beginner investor mistakes that a qualified investment advisor can help you avoid, while better planning for your future.
1) Buying “cool” stocks, or giving too much attention to brand loyalty
This is one of the most common mistakes of beginning investors. Although you
might feel a certain pull to invest in a company whose products you already support, it’s important to remember that you’re not buying their product; you’re buying their future performance as a company. In the long run the earnings you make from holding a few shares of Phillip Morris or Raytheon will provide much more comfort than a portfolio built on your own personal tastes. Remember, your investments’ future earnings are more important to your well being than owning a fraction of a “cool” brand.
2) Investing Too Conservatively
With the previous point in mind, it’s important to not be overly conservative when it comes to planning your future. Ever since the housing bubble new investors have been very skittish when taking on risk, many opting out of the stock market entirely. That being said, it’s important to remember the old adage that “without risk, there is no reward.” A financial professional can better assess the highs and lows inherent with ownership of any stock. A more evenly balanced portfolio (that means one with stocks), while carrying an additional degree of risk, offers much greater rewards to the investor, and under a watchful eye it will continue to grow for years to come.
3) Hoping to beat the market “bad gambling”
This tip, more than almost any other, is extremely important to new investors. We’ve all seen a movie or heard a story with someone offering “a deal too good to be true,” and when it comes to investing that old cliché is worth its weight in gold. While we can all think of an example when a company’s stock value went through the roof seemingly overnight, it’s important to remember for every success story there are many more of failure and bankruptcy. Putting everything on a single stock or position is just as risky as taking your life savings to Vegas and hoping for the best at a roulette table. Any investment you care about should be made as part of a balanced portfolio and a long-term plan.
4) Budgeting for the short-term instead of long-term
This is a surprisingly overlooked aspect of financial planning, but it can make a world of a difference when it comes to continuity. When plans are made for the near future (say next month) costs are often underestimated and the bills can quickly stack up before you realize you’ve blown your budget. When budgeting it’s better to make an annual list of your needs and then work from that point, as you tend to more accurately estimate expenses and allow for more generous margins of error with greater lengths of time. In fact, one study of college students found that monthly expenses were often underestimated by as much as 40%, but yearly budget projections actually overestimated expenses by 3%.
5) Ignoring your investment horizon
To be frank, you need a investment coach to accurately accomplish your goals. Many new investors forget that investments are made for a purpose, and if you don’t have access to your money when you need it that investment has failed you. Wish as we might, it’s still extremely unlikely that you’ll ever pick up stocks and turn them around next week for an exuberant profit that you can retire on. To accurately predict your portfolio’s performance over a timeline that spans the rest of your life is no trifling matter, and requires professional help to be done properly. Whether you’re looking for a return in the next year or in the next 10, it’s important you be clear with your investment advisor to assure that your investments have matured and are ready when you need them.