Yahoo Finance 6 Reasons You Might Regret Investing
Investing can sometimes be hard emotionally, because it’s inevitable that you will make mistakes. Which mistakes you make will depend on the type of investor you are, but they can be discouraging regardless.
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Not only are these mistakes common, but they can also teach you important lessons. Even with the inevitable regrets that go hand in hand with investing, it’s important to stick to a consistent, winning, long-term investment plan. Learning from the mistakes below can help you do just that.
You Sold Too Soon
A common investment mistake is selling a winning position too soon. This is completely understandable, as most investors are generally risk-averse and eager to take profits. In fact, there’s even a Wall Street axiom noting that “you can’t go broke taking profits.”
However, as many famed investors like Peter Lynch and Warren Buffett will tell you, real money in the stock market is made over time. Taking profits, while no doubt providing an emotional boost, will always limit your potential upside. This is why most traders lose money. While they may make a few quick wins, the odds are against them over time. Picking good long-term winners and hanging on to them is a way to avoid investment regrets.
You Bought Something You Didn’t Understand
Buffett, the oft-quoted billionaire CEO of Berkshire Hathaway, has long espoused a philosophy that he will only invest in things he understands. That way, the odds of success are much greater.
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In today’s market, it’s far too easy to get caught up in trends like meme stocks and crypto-related trades rather than investing in quality, easy-to-understand businesses. While you might get lucky here or there and catch a winning investment trend, buying things you don’t understand typically leads to regret — and often for reasons that you might not fully understand.
You Paid Too Much in Fees
In this day and age, there is absolutely no excuse for paying too much in investment fees. While not all services should be “free,” and some are indeed worth the cost, there are far too many suitable, low-cost options available to choose from now to go with the higher-cost choice.
For example, if you need advanced financial planning, you may very well want to pay for the services of a Certified Financial Planner at a full-service brokerage firm. But if you’re also an active trader, there’s no reason to execute your trades through the same broker for $100 a pop or more when you can get the same results from a no-commission broker. Remember, every dollar you pay in fees is one dollar that gets sucked out of your investment account balance.
You Got Locked Into an Illiquid Investment
Some types of investments are more illiquid than others. This means that it’s harder to get your money out of them in a timely fashion. If you buy a variable annuity, for example, not only will you suffer early withdrawal penalties if you take money out before age 59½, you’ll also face steep surrender charges from the issuing company for as long as 10 years after you buy it.
Other types of illiquid investments include partnership, hedge funds, private equity and real estate. There may very well be good reasons for owning these types of investments, but if you’re in the financial position where you may need cash quickly, owning illiquid investments can be a real headache that you will end up regretting.
You Get Too Emotional About Investing
It’s hard to remove all emotion from investing, but when it pushes you into poor choices, you’ll end up regretting it. For example, if you’re too emotional, you may very well sell the beautiful long-term portfolio you’ve built at the first sign of a market correction.
At the other extreme, you might keep funneling money into momentum stocks that are climbing rapidly, getting excited at the “easy” money and feeling like the good times will never end. Both of these emotional reactions — fear and greed — are likely to damage the success of your investment plan over the long run.
You Overtrade
The era of zero-commission and app-based investing has brought about two major changes to the stock market. First, it has improved access to stock investing to a broader range of Americans. Second, it has allowed undisciplined investors to trade themselves into oblivion.
When you’re rewarded with prizes or on-screen displays for trading — a process known as gamification — you’re mentally encouraged to trade more. Combined with the lack of commissions attached to these trades, it’s far too easy to buy and sell more often than you normally might. As various studies have shown that active traders lose money somewhere between 80% and 97% of the time, this is clearly a reason you might regret investing.
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This article originally appeared on GOBankingRates.com: 6 Reasons You Might Regret Investing
