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How To Identify Investment Mistakes Before It’s Too Late!

I don’t know what sort of an investor you are, I can only describe my own investing attitudes and techniques. But as for me, one thing that I’m really good at is making BAD investment decisions! Oh sure, I do all my homework and research, I do massive financial analysis of every company I want to invest in… and then I pull the trigger and buy the stock! And within the next three months the stock usually drops out of the sky!

It’s a gift I know, and I’m sure you are jealous!

But one upside to my bad stock picking is that I have developed several rules to use in order to determine whether or not you have made a bad investment bet. You can use these rules or tips to quickly identify a bad stock so that you can sell it before you lose too much money. And that’s what I’m going to share with you in this article today.

So let’s talk about some of the more common mistakes that you can make as an investor and how to identify them right away.

The first one is chasing yield. With bank certificate of deposits paying out so little interest these days, it’s tempting to go looking for other investments that pay out higher yield. The problem is; in the world of investing – payout is inversely related to risk, which means things that pay out more are by definition riskier and if you go chasing those higher-paying investments, you are therefore adding more risk to your portfolio then you may be aware of.

The second mistake is in failing to diversify your portfolio. I can pick really bad stocks, but as long as I’ve picked enough stocks overall then the chances are fairly good that the winners will outweigh the losers and as soon as I can identify a particular stock as a dud, I can quickly sell it and replace it with something else that has a better chance of increasing in value over time.

The third mistake is in not using dollar cost averaging. A great great great strategy is to simply set aside X dollars per month that gets automatically deposited into an account that purchases shares in an S&P 500 index fund of some sort. The trick is to make your payments on the same day each month. Some months the stock market will be up while other months the stock market will be down and by purchasing your shares on the same day each month you get to take advantage of dollar cost averaging which means that whenever the stock market is down you get to buy more shares so that when it goes back up your cost of those shares averages out to a lower number.

The fourth mistake is letting the tax tail wag the dog. How many times have I gone after investments simply because they made good sense from a tax point of view only to get burned in the end through poor performance. Investing intelligently with an eye towards tax reduction is smart, just don’t let it become the main factor in making an investment decision.

So there you have four common investing mistakes that you can keep an eye out for and quickly fix if they crop up in your portfolio. Invest on!

Written By Jason Markum

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