Investing in stocks and bonds is a tricky mental activity.
Being right 60 per cent of the time will bring decent returns. Being right 70 per cent of the time will bring excellent returns.
But the process of being right is complex and hard to achieve given market vagaries and investors’ reaction to daily news. The Visual Capitalist recently did a graphic of the most common mistakes investors make pursuing high returns from the market.
Leading the pack is investor expectations. Investors tend to expect an annual 15 per cent return. Professional investors look for a seven per cent return — doubling investment value in 10 years.
Investors need long-term goals instead of reacting to fads on the daily news or hot tips.
Not diversifying stock holdings is a bad idea, as only 21 per cent of stocks usually beat the market average. Diversifying spreads market risk.
Buying high and selling low doesn’t help any.
Investors who trade too often tend to under-perform the market by almost seven per cent.
Don’t be afraid to take some risk. Don’t be like the person only buying “safe” bonds and getting subpar returns.
Basing decisions to sell mostly on tax matters is another common mistake.
Focus on short term news hurts returns. Be patient. The stock market has been positive 73 per cent of the years since 1920.
Staying in the market can offer better long-term returns than getting in and out.
Forgetting about risk can lead to disaster. Evaluate risk when buying. Beware of chasing high dividends. High dividends are often a red flag for the future.
Start investing while young. A person starting at age 25 investing $200 a month would have a $520,000 portfolio at 65.
Starting at age 35 that portfolio will be worth $245,000.
Do your due diligence on both the broker you deal with and each company in your account.
Successful investors most often have long-term goals and a plan. Long term ranges from five to 10 years on any investment.
The plan should determine whether you are a value investor, buy for growth, income or both, or are a speculative momentum player. Stick with the plan but review it annually to see if investments still fit your goals or are in sync with long-term market trends.
Figure out what sectors you may want to avoid or zero in on. Some plans avoid stocks damaging to health — tobacco, liquor, marijuana. Others avoid cyclical commodity stocks.
Will you invest only in established companies paying dividends or will you buy some riskier companies?
Patience is a virtue all investors need.
Remember buying a stock is owning a share in a business. Businesses do not reach their potential overnight.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
