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"Smart investors stay on track by avoiding common pitfalls."
- Pack mentality – Unsophisticated investors can fall prey to hot tips and get-rich-quick schemes. Stick with your plan rather than looking for a quick, easy hit.
- No destination – Know where you’re going, by defining your objective for investing. Is it a long-term need, such as retirement? In this case, you’ll want to pick an investment set up to answer this need (such as an income-tax-deferred plan).
- No perspective – Don’t make your investment choices based on one day’s activity in the market, or by hindsight. Remember, past performance is no guarantee of future results.
- Stops and starts – Learn to take market ups and downs in stride. Invest for the long haul.
- Over-reaction – Investors can be overly influenced by the media and markets. Don’t be unduly swayed by one event or stock-market report.
- Tunnel vision – Don’t put all your money in one investment, one industry, or one asset class. Smart investors spread their money around to spread risk and balance return.
- Penny wise – Know what the total cost of your investment will be. What are the fees? How is your investment taxed? How may your return stack up against inflation?
- Lack of discipline – Use dollar cost averaging to continually invest, whether the market is up or down. (By the way, you’re already doing this if you participate in your employer-sponsored retirement plan.) Dollar cost averaging does not ensure a profit or guarantee against loss. You should consider your financial ability to continue investing through periods of low price levels.
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