There are several pitfalls you have to be careful not to fall into when you decide to begin investing:
- Do nothing -- if you do nothing, this will not provide you with a comfortable retirementStarting late -- the earlier you start investing, the better off you are. Compounding will not build as large of a wealth for your retirement if you do not have as many years available for compounding potential
Investing before paying down credit card debt
-- high interest rates on credit cards will require you to make higher rates of return in stocks in order to break even with your debt. This is especially true after considering taxes and transaction fees and interest rates as high as 21%.
Investing for the short term
-- only invest money in the short term that you will actually need in the short term. However, invest money in the stock market that you will not need for at least three years.
Turning down free money
-- be sure to take advantage of all tax-advantages and any employee matching programs at work
Playing it safe
-- If you are young, you will want most of your money in the stock market. By doing this, you can reap the returns of having the time to weather the dips and come out ahead of the game. Otherwise, you may be missing out on some high growth opportunities.
Playing it too daring
-- Even if you are a true daredevil, it is not a good idea to put all of your money into something that will go down the drain. It is okay to take risks once in a while, but not with any money you will need nor with a substantial amount of your money that could be put towards securities that will bring you positive returns
Viewing collectibles and lottery tickets as investments
-- Don't make the mistake of thinking that the ornate, expensive jewelry you have stowed in a safe deposit box or the beanie babies you have stored in air tight containers or even lottery tickets will be able to fund your retirement
Trading in and out of the market
-- Taking on a long term horizon is the best approach for stock investing. If you pick your investments well, they will reap your rewards over the long term. This requires patience, and patience is a virtue, but it will pay off in the end.
Not researching a stock tip before purchasing
-- If you are at a cocktail party and you hear about some great stock tips or if you are talking to your favorite uncle on the phone and he tells you about some stock, don't jump the gun and run out and buy right away. Stock tips are great for getting ideas or feels for the market, but do not put in a purchase order until you have done some research to back it up
Assuming conservative stocks are risk free
-- Blue chips were once considered to be relatively risk free, but if you notice who has been ranked as a blue chip (look up the companies from the fifties) they do not necessarily stick around for the long haul. After black Monday, everyone rushed to put their money into Blue Chips and they grew well above their means until they came tumbling down. Also, utilities were once held as stocks that did not fluctuate much and dividends could be collected off of them. That is until the nuclear crisis and other energy crises hit.
Following the crowd on a fad
-- The famous story of the tulip bulb in Holland. One bulb could be worth more than 10 years' salary. A tulip bulb. The prices on the rare ones were extremely costly due to all the hype. Of course when the people realized it was hype, the prices came tumbling down, leaving Holland in a depressed state. The ones that got out early, they most likely left with a profit, but so many did not fare as well.