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Friday, February 4, 2011

How to avoid common investment mistakes

Echoes of investing disenchantment sound over and over again in the investment world. Often this because financial instruments and regulations are elaborate and complex, but other times it is simply about not completely understanding how the markets work. Many variables influence the price of securities and all it takes is one missed or overlooked factor to throw an investment off. With a little thought, due diligence and sound investment i..e not speculative, strategy help make financial goals a reality.

The first step in avoiding common investment mistakes is to leap into a new way of thinking about your investments and then look at your past investing from that perspective. The reason being, if you look at investments with the same reasoning every time, you're likely to get similar if not the same solutions every time as well. What good is that if the standard investment advice yields lethargic results? Learning about investing is an ongoing experience, the video below discusses a few of the many possible mistakes investors make:


According to the CFA Institute, an organization that certifies financial professionals, there are several common investment errors some of which include poor strategy, too many investment expenses, high investment turnover, and inadequate buying and selling habits. (cfainstitute.org). These investment mistakes are important and should be avoided but what they are not is individual specific. Standard investment advice often leads to standard investment results. So, in light of this, the first investment mistake discussed here will be tuning into financial gurus too much.


Financial guru syndrome


Financial guru syndrome is the ongoing belief in the steady stream of re-wrapped investment terminology, information and reasoning. Financial gurus be they hedge fund managers, Chief Executive Officers of Banks, or mainstream economists may be wise, learned, and have a lot of experience and know how within the financial sphere but what they are most definitely not, is you, the individual investor. In the media, financial gurus speak to the masses not to the individual and who is more important than you when it comes to investing. Get it? The same advice for Mr. A may also apply to Mr. B, but that doesn't mean it applies to Mr. B's investments in the way Mr. B wants it to.

Mono-economic financial planning


Another technique to consider when avoiding investment mistakes is dual economic financial planning. If this sounds confusing don't be fooled because it's not. Dual economic financial planning involves investing for both good and bad economic times. Many investors choose conservative investments so they can withstand poor market performance, but that only goes half way in investing for dual economies. Taking investing to the next level, and rethinking investments for all scenarios is a useful step in avoiding the common investment mistake of ignoring down markets. By investing for both up and down markets one is not merely hedging bets, but banking on the good and the bad.

Rewriting investment history


Ever get the feeling your "new investment strategy" isn't quite as new as it should be? If yes, you could be rewriting investment history. Consider an investor who is within 5 years of retirement and has just lost 25% of retirement net worth. Using a retain worth conservative pre-retirement strategy is useful and not to be underestimated, however, this doesn't solve the problem of weak past investment performance or loss.

One way to approach this particular investment situation would be for the investor to realize not all that money will be needed in the first few years of retirement. That opens the door to a longer term investment horizon within which the investor can regain and potentially increase his or retirement funding. Overused financial strategies can lead to a rewriting of investment history. If you want to avoid that mistake, improve your approach to investing.

Tubular dollar vision


Tubular dollar vision is essentially the same as financial tunnel vision, and financial tunnel vision can be harmful to your financial health. By not rethinking investment strategy and technique in a new way, with new goals reduces the possibility of enhanced investment performance. For example, Mrs. Y has done reasonably well and achieved an individual average ROI of 12% after investment taxes and expenses.

Tubular dollar vision might say, that's good, keep on keeping on with that and the power of compounding and consistent ROI will leave you in good shape in such and such an amount of time. In Mrs. Y's case, tubular dollar vision might not be so debilitating, but this does not necessarily mean Mrs. Y is making the most of her money. To avoid tubular dollar vision, try a tri-kaleidoscopic frame of financial reference to avoid common investment mistakes and reach new financial attainments.