3 Investing Mistakes You May Be Making Without Realizing It
Your goal as an investor is to make money and achieve your long-term objectives. But if you end up making one of these innocent mistakes, your goals could easily be thwarted.
1. Not diversifying enough
It’s easy to latch on to one specific sector of the market and decide it’s where you’ll put the bulk of your money. But going all-in on a single market segment could really come back to bite you. If that specific segment tanks, you could end up with serious losses on your hands.
Just look at the massive hit tech stocks took this year. Investors who were all-in on tech stocks may still be sitting on sizable year-to-date losses in their portfolios.
A better bet is to maintain a diverse mix of stocks across a range of industries. And a very easy way to do that is to buy ETFs, or exchange-traded funds. That way, you get instant diversification without having to do a deep dive into different market segments you may not be so familiar with.
In fact, you may specifically want to load your portfolio with S&P 500 ETFs. That way, you can effectively put your money into the 500 largest publicly traded companies without having to research each and every one (because, let’s face it, most of us just don’t have the time or patience for that).
2. Playing it too safe with bonds
Bonds are commonly less volatile than stocks, and if you’re the risk-averse type, you may be tempted to load up on bonds in your portfolio. But while bond values don’t tend to fluctuate as wildly as stock values, they could also limit your portfolio’s growth.
If you’re nearing retirement, you may want to have a larger chunk of your investments in bonds. But if you’re fairly young, get aggressive and load up on stocks. Otherwise, you might struggle to grow your money at a rapid enough pace to meet your long-term objectives.
3. Chasing dividends
Many investors love the idea of generating ongoing passive income in their portfolios, and dividend stocks can easily lend to that. But while dividend stocks can be a great investment, that’s not always the case.
Sometimes, companies that pay generous dividends do so at the expense of investing in and growing their businesses. So what you gain in the form of dividend payments, you might lose in the form of limited share price appreciation over time.
It’s also easy to get caught up in the lure of giant dividends. But that doesn’t mean the companies paying those dividends are in strong financial shape. So rather than just going after the highest dividend payments you can collect, instead, see how the businesses behind them are actually performing.
Don’t set yourself up for failure
Many investors have good intentions but ultimately fall victim to blunders like these. And that’s a situation you can avoid by making an effort to branch out in your portfolio, investing in stocks while you’re still fairly young, and being careful when loading up on companies with generous dividend yields.
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