5 Money Management Mistakes
It can be dizzying. And there's lots of hard-to-ignore noise on the periphery.
No, I'm not talking about trying to work at home with the kids buzzing around. Instead, I'm talking about managing your investments. Peruse the paper, surf the Internet or turn on your TV and you'll be bombarded with "can't-miss opportunities" and gut-wrenching financial news that inevitably work their way into decisions you make on your investment portfolio.
Truth be told, I'm surrounded by money managers and money news, and sometimes I wonder, "What's the right move?" And that's with 20 years of experience in the business of personal finance! There's no doubt about it: Managing your investments can be perilous -- ripe with opportunities to make a bad move.
With the accuracy of hindsight on my side, here are five common mistakes I've seen people make while trying to tackle this task.
Timing instead of "time in." Buy low, sell high. Sounds easy enough, right? But the reality is far different. At the beginning of 2013, a budget crisis, pending government shutdown and a long-running bull market could easily have led investors to jump out of stocks. A correction was surely imminent. Oops, U.S. stocks surged more than 30%.The lesson? Don't try to time the market. Among the challenges you'll face is the need to make two decisions -- when to get out and when to get back in. Can you get them both right? If so, can you do it more than once? Probably not. Don't try to time the market, let your long-term money work for, yes, the long-term.
Picking off the top of the list. Avoiding this market mishap is a battle with human nature. It's way too easy to look at last year's winners and choose to jump on the bandwagon by shifting your money to whatever did best. Don't do it! Remember, the rule is: Buy low, sell high. Maybe last year's winner will go even higher. Or maybe it won't. Typically, you'll arrive at the party just in time for a big disappointment. Plus, chasing last year's return isn't really an investment strategy.
Hankering for a home run. In 2013, if you owned Rite Aid stock, you would have seen a healthy 272% return. If you had bet on the gold-mining stock Newmont Mining, you would have lost nearly half your investment. The point? For most people, broad-based mutual fund or exchange-traded fund investments make more sense than swinging for the fences ... and the risk of striking out.
Believing more is better. Everything in moderation. It's a saying that works well in many aspects of life, and investing is no exception. Some gold, commodities or real estate might be a nice addition to your portfolio. However, like cayenne pepper in your favorite recipe, more is not necessarily better! A diversified portfolio should contain a mix of different investments but not wild bets on the latest trend.
Following the headlines. Today's 24-hour news cycle makes it difficult to focus on your long-term goals. But overhauling or overturning your plan for the next quarter-century based on the latest and loudest talking head's thoughts (which won't match next week's rant) is not a solid portfolio management model. Follow the news, but don't let it run you in circles.
Are you guilty of these missteps? Hopefully not! But if you feel any of these mistakes creeping into your life, bust out your long-term plan and your noise-canceling headphones. Like it or not, the investment world will always be a loud one. The key is to block out the extraneous noise and tune in to the goals you're trying to achieve.