7 Most Common Stock Investing Mistakes
Do Nothing… There is no guarantee that the market will go up the first day, month, or even year that you invest in it. But there is one guarantee: Doing nothing at all will not provide for a comfortable retirement. Many wise investors say, “The greatest risk in stock investing is being out of the market!”
Starting Late… Postponing your investing career is second only to not investing at all on the list of investment sins. You already know that the earlier you start the better off you are. (if you’ve forgotten, refer back to “Investing Basics” and gaze at the table on the Effect of Compounding again) If you’re already past those formative twenties, I’ll rephrase this pitfall to read “Not starting NOW!”.
Investing Before Paying Down Credit Card Debt… If you have money in your savings account and you have revolving debt on your credit card, pay it off!!! Most credit cards have an annual interest rate of 16% to 21%. Let’s say you have $5,000 to invest, but you also have $5,000 debt on your credit cards with an average annual interest rate of 18%. It doesn’t take an astrophysicist to figure out that you’re going to have to get an 18% return after you pay any investment fees and taxes just to break even. Pay the debt first, then think about stock investing!
Maximize Your CPF Returns… If you have over $50,000 in your CPF (Central Provident Fund) account you can begin to think about investing your “excess” retirement funds into the stock market (only selected stocks, but a rather wide selection). Don’t let this opportunity slip by.
Playing it Safe… If you are young, most of your investing dollars should be in the stock market. You have enough time to weather any dips in the market and to reap the rewards of long-term gains. Although you may want to transition into bonds later in life as you depend on your investments for income, stocks should make up a large portion of the portfolio of every investor.
Playing It Scary… Not every investment is for everyone. We’ll help you determine your psychological investing profile later. Even if you’re a daredevil, you shouldn’t pour all of your money into something that may end up going down the drain Viewing Collectibles and Lucky Draw Tickets as Investments… If old comic books, Hello Kitty dolls, and abandoned exercise equipment could be used to fund retirement, do you think the stock market would exist? Probably not. Don’t make the mistake of thinking your jewelry (better to consider the jewelry company), Beanie Babies, old dolls, or a Lucky Draw will provide for you in your later years.
Trading In and Out of the Market… The best approach to investing is the long-term one. Pick your investments carefully (after prudent study, covered in the next few classes) and they’ll reap rewards over the long term that you’d never dream possible. Trade in and out of the market and you’ll be saddled with large fees that chip away at your returns (broker fees are falling in Singapore and there are currently no capital gains taxes, so trading is far more reasonable a strategy in Singapore than say in the US, but, and more importantly, you’ll potentially miss out on gains that long-term investors enjoy with much less effort. You cannot predict short term swings in the market, and anyone who says they can should be a billionaire by now, or they’re lying!
