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Investing is a great way to increase your net worth, grow your money, and even create a passive stream of income. I am a big believer in making investing a priority from the start, and making your money work for you, not the other way around.
With that being said, I also see some common investing mistakes that people make. Do you make any of these 4 investing mistakes?
If you are making these mistakes, be sure to follow the action step after each one in order to get your investments back on track and earning you high returns!
Let’s get started with learning about the 4 common investment mistakes people make.
Not having an emergency fund set up first
Investing is a great way to see a higher return on your money. After all, who wants to see their money grow by .05% (which is what my current bank pays for their savings accounts)?
While that slow rate of return can be hard to swallow, it is important to have money in a savings account for emergencies. Most investments aren’t very liquid, so getting access to the money can take time and can cost you.
You should have about 6 months of living expenses in your savings account before investing. This way you can avoid having to cash out investments or take a high interest rate loan.
I personally use 2 different savings accounts in order to accomplish this. I have one savings account at a brick and mortar bank. I keep about 1 months of living expenses in it. This account I use for only big emergencies.
For my 2nd savings account, I use this high interest online savings account. It earns a little higher interest rate (.75% as of this writing), but it does take a few days to transfer the money to my checking account. I keep about 5-6 months of living expenses in this account.
After I have these 2 accounts at the balance I feel comfortable with, I then start putting money into other investments. This way I feel confident that I won’t need to get a loan or take from my investment accounts if an emergency were to happen.
Action step: Before making any investments, have 1-2 savings accounts that hold 6 months of living expenses.
Not having a plan that incorporates the future
This is one thing I see a lot of people do. They know they want to invest money because they’ve heard what everyone is always telling them about investing for their future. However, they don’t formulate a plan before they get started. Instead, they just dive in!
It is important to sit down and think about your goals for the next 1, 5, and 10+ years. Then, figure out what you need to do in order to reach those goals.
Some questions you might want to ask yourself while thinking about your goals include:
- What are you saving for? For example, are you focused on your retirement? Creating a higher net worth? Creating passive streams of income?
- What amount of risk are you comfortable with?
- What investment products interest you? (Real estate, stock market, businesses, etc)
- What are your target goal dates? For example, if you are interested in creating passive income, how much do you want to have created and by what date?
Having a plan and goals for your investing will help you stay on track with your investments. You will also want to revisit this plan at least once a year to be sure your goals are the same, and that your current investments align with your plan.
Action step: Create an investing plan that aligns with your goals, ensuring that it is detailed enough to give you actionable steps for success.
Not doing your research
Investing can be confusing and intimidating at first. After all, there are so many things you could invest in. The last thing you want to do is start throwing your money at investments that you have no knowledge of. You could lose a lot of money fast!
If you are interested in investing in rental properties, then you want to be sure you have researched everything before you get started. You could take a class about rentals, like this one. Online classes are a great way to learn from people who have been successful in the type of investing you want to do.
You could also join a local real estate investing group. These groups usually include real estate agents, contractors, lawyers, and other investors. Not only will you learn valuable information, but you will also form relationships with industry experts that you can pull from later.
Being armed with knowledge before you invest your money will ensure you are making the highest return on your investment while minimizing your risk.
Action step: Once you know what you want to invest in, do some research by taking a few classes, reading some books or blogs, or joining a group or organization.
Changing your strategy too frequently
It is important to re-evaluate your investments at least once a year. However, this doesn’t mean you should be changing things that frequently.
Each time you change your investments and strategy, you have to move your money around and out of your current investments, possibly losing money or seeing a very low return.
Let’s look at an example. Let’s say you started by investing in rental properties. You buy 2 properties and get them both rented out. Then next year you decide that you want to invest in stocks that pay dividends. You sell the rentals and take all the money and put it in the stock market.
Then the following year you start looking at the real estate market again and see that the flipping house business is really booming and you want to be a part of it. You cash out all of your stocks at whatever current price they are at and start buying houses to flip.
And so on and so forth.
Do you see the problem with all of this?
When you sold the rentals, you paid fees for the real estate agent, the closing fees, and possibly any change in the market price of the home. And you barely paid anything down on the loan because most of the payments that first year went to interest.
When you cashed out the stocks to get back in the real estate game, you paid whatever the current market price was for the stock, meaning the stock prices may have gone down. You also paid the transaction fees that went with the cash out.
If you never let your money have a chance to grow in your investments, then you might not be seeing the full return on your investment you are desiring.
Action step: Pick a strategy and stay with it for the long haul. Be sure you are monitoring your investments though, as you want to be ready to take advantage of great opportunities as they come.
So, do you make any of these 4 investment mistakes? If so, don’t stress about it. Take the action steps for each one and get your investments back on track!
Know anyone who needs to get in on the investment game? Be sure to share this article with them by using the sharing buttons below. Remember, knowledge is power!