Monday, March 10, 2008

top 3 mistakes investors make

I've been tagged by fellow blogger Dividends4Life to list my top 3 investing mistakes. I believe some bloggers have described 3 investing mistakes they've personally made, while some have described what they believe to be the top 3 mistakes that are generally made by investors. I've decided to keep in general.

Top 3 Mistakes Investors Make
  • Failure to Focus. Just by observation I can say that many investors lack a coherent focus to their strategy and their habits. Investors need to define their strategy based on their time horizon, skills, beliefs, and life situation. Once that strategy is defined, investors should stick to their system long term and not waver back and forth between strategies and investment ideas/styles. This type of back and forth tends to lead to high trading fees, high expectations in short time periods, and low success rates long term.
  • Unrealistic Time Horizon Expectations. Unless you are a trader, equity-based investments should be held for the long term (5 years+). Shorter term (1- 4 year) investments should be diversified in vehicles such as bonds, high interest savings accounts, and money market funds.
  • Failure to Recognize the Equality of 'Investments'. Real estate is to stocks, as stocks are to fine art. Investments come in all shapes and sizes. One can compare the characteristics and fundamentals of investments and the markets they function in. There are far too many people who generalize and believe real estate is 'safer' than stocks. The real estate boom and bust in the U.S. should have revealed the equality of all investments to us all.


Dividends4Life said...

Excellent points! Thanks for participating.

Best Wishes,

Geoff said...

Hey MG, I really enjoy your postings. This doesn't relate to your current posting, so please excuse this and feel free to delete/move it as you see fit.

I'm in a similar situation as you (married, 32, one baby, one mortgage, no other debt, some investments outside of rrsp, budget and track expenses closely, etc). My question is how are you planning on handling the daycare side of having a baby? Once my wife is back to work -- that year off is expensive, by the way to anyone thinking the government helps out, EI maxes out at 22% of her annual salary) we are going to have to struggle to get by. We'll be paying $1,550 a month in day care costs until he's 18 months old, when it drops down to $1300 and then at 3 he's down to $1000 / month. The government even maxes out the deduction at $7K / year.

We have a nice house in Toronto, with a mortgage that is 3x our annual salary - a bit high, but we looked at moving to the suburbs which aren't as cheap as they used to be, and with gas at $1.08 that's an uncapitalized expense I can do without too so choose a nice centrally located house. Without daycare costs we'd actually be quite well off, but with them in we're in for a rough patch, and I don't know how we'd have another like we'd want to. I'm curious to know if you're thought about this yet or what your options are. -Geoff.

nancy (aka money coach) said...

I think the biggest mistake of all is simply Not Doing it. Only 30% of Cdns have any RRSPs at all, and if we extrapolate that as a rough figure for people investing, period, it means a lot of people are missing out - either due to intimidation, anxiety, or just not thinking about it.
Learning about the investment world has been one of my most empowering life experiences, even if from time to time I chose foolishly (eg. my martha stewart stock. shoulda known. shoulda known.)

Thicken My Wallet said...

To dovetail on Nancy's comment, probably the biggest mistake investors make is not taking responsibility for their investments- either they delegate the entire thing to someone (so they can blame them if things don't go right) or don't do it at all.

Jordan said...


Long time reader, first time commenter. This blog is a great resource and I enjoy it every day.

What is going on with webring? It's been down for almost 2 days now? Do you have any idea what is causing the problems? I'm wondering why my YLO is tanking today when everything else seems to making gains today. I can't find any news anywhere. Need my Financial Webring fix.

MG said...

Yes, daycare is extremely expenisve. In our case Grandma is helping out.

nancy, I agree with you with respect to both of your points.

thanks for the comments. I imagine FWF is down for maintenance. The YLO drop has been very surprising and i think it all has to do with RHD in the U.s.

FinancialJungle said...

Webring isn't down. Try replacing .com with .org.

I was tagged by Dividends4Life as well, but I've been sick for a while. Will try to get it out soon. Promise.