If you’re new to investing, you’re probably worried about making a lot of mistakes. Even if you’re a successful investor like J.D. Perry of Baton Rouge you can still sometimes experience a mishap, lowering your returns. Below, Mr. Perry draws upon his wealth of experience in the financial industry and current role as President of Moss Point Financial to educate readers about investment mistakes and how to fix them.
Never Let Your Emotions Lead the Way
When the market is volatile, it’s natural to be nervous. Don’t let that nervousness lead you to panic-selling. Many long term winners go through periods of volatility. Your nervousness could easily cause you to miss a recovery. Similarly, if you’ve been having success in a bull market for a long time, it is easy to become very confident. This can lead to overconfidence, though, and taking stupid risks.
Avoid knee-jerk emotional reactions. Always take the long view when it comes to investing. As a general rule, hold onto your investments for at least five years. This will help ensure that you maximize your returns.
Don’t Put All of Your Eggs in One Basket
Your portfolio needs to be diverse. Your investments should not all be in the same industry, and they should also not all be in the same part of the world. When your investments are all in the same industry or the same region, a single disaster could wipe out your investments. Never have more than ten percent of your investments in the same industry, and try to have your investments spread out across the world. This will make it extremely unlikely that anything can cause you to lose too much of your returns.
Keep Your Expectations Realistic
Many new investors are full of dreams about beating the market and seeing immediate substantial returns. Trying to make this happen often leads to investments that are so risky, your money would better be spent in Vegas. Investing involves getting rich slowly, with a lot of patience and effort.
Never Try to Time the Market
Though conventional wisdom says to “buy low and sell high,” actually trying to time the market to do this is almost impossible. Nobody knows how the market will move in the future. A low priced stock could be poised to make gains, but it could also be about to tumble even further. A sudden jump in price might mean that it is time to sell before the price falls again. It could also be just the beginning of an even more significant rise. If investors were really able to time the market accurately, every investor would be wealthy.
Instead of trying the crystal ball routine, it is much better to invest regularly, regardless of what the market is doing. When you put money in every month, you buy a higher number of shares at low prices and fewer at high prices. This evens out the market’s volatility, as far as your investment portfolio is concerned.
Never Follow the Herd
Think for yourself. Never jump onto the latest trend, or do what you see everyone else doing. A rising market builds investor confidence, causing more people to invest. This causes prices to rise, resulting in most new investors buying high-priced stocks they are unlikely to see much profit on. Ignore short-term market fluctuations. Focus on your long term goals. Always remember that past performance is not really an indication of future performance. Sudden reversals can come along at any moment.
Never Make Investment Decisions in Isolation
You must consider every potential new investment in the context of your entire portfolio. As discussed above, your portfolio needs to be carefully balanced, with a wide array of different kinds of investments. If you don’t consider each investment in this context, you could easily end up with a risky portfolio which is concentrated in one particular industry or is full of investments in high-risk companies or unstable economies.
Investing isn’t a get rich quick scheme. It should not be a gamble. It requires patience, a long term view, and rational decision making. If you remember this, you should be pleased with your return on investment.
About J.D. Perry:
J.D. Perry of Baton Rouge is the former Chief Executive Officer of JP Global Capital Management, and the founder and President of ViaCap Partners, the parent company of Moss Point Financial and affiliated Moss Point companies. Prior to launching his businesses, Mr. Perry served in a variety of roles in larger trust institutions, including that of a Senior Vice President of Trust Division for First Commerce (now JPMorgan Chase), a $40 billion trust group servicing the Southeast US.