Smart people sometimes make silly mistakes when they investing. Part of the reason for this, I suppose, is that most people do not have time to learn what they need to know to make good decisions. Another reason is that many times when you make a silly mistake, another person, a seller of investment, for example, makes money. Fortunately, you can save lots of money and a lot of headaches by not making bad investment decisions.
Do not forget to diversify
The stock market average return is 10 percent or more, but to win the 10 percent he needs to possess a wide range of populations. In other words, it must diversify.
Anyone who thinks about this for more than a few minutes you realize it’s true, but it’s amazing how many people do not diversify. For example, some people have huge chunks of the shares of your employer, but little else. Or have a handful of stocks in the same sector.
To make money in the stock market, it takes about 15 to 20 stocks in a variety of industries. (Not only have these figures represented the number of 15 to 20 from a statistical calculation that many upper division and graduate account finance textbooks.) With less than 10 to 20 stocks, the portfolio return is very likely that are somewhat higher or lower than the average stock market. Of course, it does not matter if the portfolio return is greater than the average bag, but be careful if you do the return on your portfolio is lower than the average stock market.
By the way, to be fair I must say that some very bright people disagree with me in this business of holding 15 to 20 stocks. For example, Peter Lynch, the scandalous success of the former manager of Fidelity Magellan mutual fund, suggests that individual investors have 4 to 6 people understand well.
His feeling that shares in his books is that following this strategy, an individual investor can beat the market averages. Mr. Lynch knows more about picking stocks than I ever, but with respect, however, agree with him for two reasons. First, I think Peter Lynch is one of those geniuses modest underestimate their intellectual ability. I wonder if it underestimates the powerful analytical capabilities it provides to collect their livestock. Secondly, I believe that most individual investors lack the accounting expertise to accurately make use of quarterly and annual financial statements those companies in the ways suggested by Mr. Lynch.
The stock market and other stock markets bounce around on a daily, weekly, and even years, but the general trend for long periods of time has always been up. Since the Second World War, worse, or the return has been -26.5 percent. The worst round of ten years in recent history was 1.2 percent. Those numbers are pretty scary, but things look much better if you look long term. The worst of 25 years of return was 7.9 percent.
It is important for investors to be patient. There will be many years bad. Many times, an evil, or is followed by another, or bad. But eventually, the good guys? You outnumber the bad. To offset the bad guy? You too. Investor’s patient in the market is both good and bad? You almost always better than people who try to follow every fad or purchase the year you spent a hot stock.
You may already know about the average investment in dollars. Instead of buying a number of shares at regular intervals, you buy a dollar amount such as $ 100. If the stock price is $ 10, buy ten shares. If the stock price is $ 20, you buy five shares. If the stock price is $ 5, you buy twenty shares.
Average dollar investment offers two advantages. The biggest is that regular investment in both good markets and bad markets. If you purchase $ 100 deposit at the beginning of each month, for example, do not stop buying shares when the market is down and every financial journalist in the world are working to fan the flames of fear.
The other advantage of the average investment in dollars is to buy more shares when the price is low and fewer shares when the price is high. As a result, do not be swayed by a wave of optimism and end up buying most of the public when the market or the stock is up. Similarly, we also do not get scared away and stop buying a stock in the market or the stock is down.
One of the easiest ways to implement a dollar to the average investment program, to participate in something like an employer-sponsored, 401 (k) or defer compensation plan. With these plans, which effectively invest money every time you withheld from your paychecks.
To invest in dollars of the average working with different populations, it is necessary to average dollar each population. In other words, if you are buying shares of IBM, have to buy a dollar amount of IBM stock every month, every quarter or whatever.
Do not ignore investment costs
Investment expenses can add up quickly. Small as differences in expense ratios, expensive investment newsletter subscriptions, online financial services (including Quicken Quotes!), And income taxes can subtract hundreds of thousands of dollars of their net worth during a life investment.
To show what I mean, here are a couple of quick examples. Say you are saving $ 7000 for a? Or 401 (k) in a couple of mutual funds that track the Standard.
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