{"id":6616,"date":"2024-10-25T14:43:17","date_gmt":"2024-10-25T14:43:17","guid":{"rendered":"https:\/\/finderica.com\/avoid-these-4-investing-mistakes\/"},"modified":"2024-10-25T14:43:17","modified_gmt":"2024-10-25T14:43:17","slug":"avoid-these-4-investing-mistakes","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=6616","title":{"rendered":"Avoid These 4 Investing Mistakes"},"content":{"rendered":"
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When I meet or correspond with Oxford Club readers who are fairly new to investing, a common theme arises: They beat themselves up over mistakes they\u2019ve made.<\/p>\n

I explain to them that we\u2019ve all paid \u201ctuition\u201d for learning how to invest, including me. But I\u2019m not talking about investing classes. I mean taking losses because I didn\u2019t know what I was doing.<\/p>\n

Lord knows I\u2019ve paid enough \u201ctuition\u201d for a doctorate from The School of Hard Knocks \u2013 without the benefit of a scholarship or grants.<\/p>\n

The good news is that my costly mistakes have taught me well. Today, I\u2019m a better investor than I ever could have imagined when I first started 30 years ago \u2013 and I can help you avoid making some of the same mistakes I made.<\/p>\n

Lesson No. 1: Use a trailing stop.<\/strong><\/h2>\n

Not using trailing stops was one of my biggest \u201ctuition\u201d bills \u2013 and one that I paid over and over again.<\/p>\n

A trailing stop prevents a small loss from becoming a big one and protects your profits if a winning investment turns against you.<\/p>\n

There have been countless times that I gave up hard-earned gains and watched them become losses because I didn\u2019t set a stop. Even worse, I allowed manageable losses to turn into gaping holes that hemorrhaged money\u2026 all because I was sure I was right about what a great stock I had bought.<\/p>\n

The Oxford Club generally recommends a 25% trailing stop, but with more active trades, I typically will start to tighten the stop as the stock rises to protect my gains.<\/p>\n

(To learn more about trailing stops, go here<\/strong>.)<\/p>\n

Lesson No. 2: Don\u2019t invest more than you can afford to lose.<\/strong><\/h2>\n

There are few feelings more sickening than realizing you\u2019ve lost more money than you can afford to lose.<\/p>\n

If you can only afford to lose $1,000 in a stock and you\u2019re using a 25% trailing stop, you shouldn\u2019t buy more than $4,000 worth of shares.<\/p>\n

On the other hand, if you\u2019re trading options (which are too volatile for stops), you should assume that if the trade goes bad, you\u2019ll lose 100% of your capital. That usually won\u2019t happen, but it is a possibility, so you\u2019ll want to manage your risk accordingly.<\/p>\n

In other words, if your maximum acceptable loss is $1,000, don\u2019t buy more than $1,000 worth of options.<\/p>\n

This strategy isn\u2019t just beneficial for protecting your downside. It allows you to take big swings as well.<\/p>\n

I\u2019ve had various investments throughout my life \u2013 including stocks, options, and real estate \u2013 where my bet was small enough that it wouldn\u2019t have a significant consequence, but if it did well, it would still move the needle in my portfolio.<\/p>\n

Lesson No. 3: Understand your investments.<\/strong><\/h2>\n

Not understanding what you\u2019re investing in causes stress. If you\u2019re new to investing \u2013 or to a specific type of investing, such as options \u2013 take the time to learn the ins and outs. You don\u2019t have to be an expert, but you should understand what makes the investment go up or down.<\/p>\n

Fortunately, there are many online resources \u2013 both free and paid \u2013 that can teach you about every area of investing. For example, The Oxford Club has some great materials on bond and option investing for Members. YouTube also has tons of videos on nearly every investing subject (although you need to be careful who you listen to, as more than a few of these videos were created by hipster doofuses who think they know what they\u2019re doing because they were fortunate to start trading during a bull market).<\/p>\n

Take the time to learn what you need to. There\u2019s always an opportunity to make money in some market. You don\u2019t need to rush into something you don\u2019t quite understand yet.<\/p>\n

Lesson No. 4: Manage your stress.<\/strong><\/h2>\n

These four lessons are all geared toward helping you manage your stress when it comes to investing. An investor who has invested too much, is suffering a big loss, or doesn\u2019t understand what they\u2019ve invested in will be very stressed out, which will lead to bigger and costlier mistakes.<\/p>\n

Your investments should never cause you to lose sleep. Now, that doesn\u2019t mean you\u2019ll be confident every time. I\u2019ve had plenty of investments that I knew were high-risk. But I was comfortable with that risk because I knew that if my investment didn\u2019t work out, my loss would be manageable. Again, small bets allow you to take big swings.<\/p>\n

If any aspect of investing is causing you stress, stop immediately. It will save you money \u2013 as stress causes people to make mistakes because they\u2019re not thinking clearly \u2013 and it will give you greater peace of mind.<\/p>\n

Enjoy the Ride<\/strong><\/h2>\n

For many people, investing is fun. It definitely is for me. When I see how much dividend income my portfolio generates these days, it makes me think of how far I\u2019ve come. Though it was a long time ago, it seems like just yesterday when I was living in a shabby basement apartment, trying to figure it all out and losing money on a regular basis.<\/p>\n

Enjoy the learning process. There\u2019s nothing like feeling empowered because you have a better understanding of how investing works. It doesn\u2019t happen overnight, so take your time and enjoy the ride.<\/p>\n

I\u2019ve already paid the \u201ctuition.\u201d Now you don\u2019t have to.<\/a><\/p>\n

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