Novice Investing - Common Investing Pitfalls

Date: Monday 01st 2008f December 2008 05:09:11 PM

15 Common Investing Pitfalls - 09/18/2005

By: Hari Wibowo

We touched briefly about common investing pitfalls here. Here is a more comprehensive list. Some of it may happen to the more experienced investors as well. This serves as a guide for Novice Investors:

Investing with debt. You should not invest when you still owe a lot of money in your credit card. Credit card interest can run to as high as 20% while in the long run, investing in the market indices can give a 10.1 % return historically.

Not Starting Now. By now, you should have known that compounding works its magic in longer time frame. The sooner you start, the longer time you let compounding do its magic and the larger your savings will be at retirement age.

Investing based on stock tips. Stock tips are just that, tips. It is supposed to help you invest but not giving you a shortcut. Doing your own due diligence is an absolute must even when you get stock tips from the so-called professional.

Investing for the short-term. The easy access of internet makes it cheaper for small investors to buy stocks online. However, short-term trading is not going to work, no matter how small your commission is. It is extremely hard to predict short-term movement of stocks. Traders come and go and those that stay seldom beat the market in the long run. Furthermore, what do you prefer? Spending a few hours each week and making a 14% return on your investment? Or spending 8 hours a day where the odd of beating the market is slim? I would prefer to spend just a few hours a week, of course.

Buying stocks because the price is 'low'. Yeah. That's right. It is tempting for a lot of people. They figure, if a $ 1 stock can rises a few cents, they will make 20 or even 50 % of their investments !! Sure, you can. But the reverse holds true as well. With a few cents of movement, you can lose 20 or even 50% of your investment !

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities.

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