The 7 Scariest Investment Mistakes

Posted by DebtKid :: October 28, 2008 @ 1:00 pm

This year's Halloween seems to be all tricks and no treat for most investors. Stocks have taken a beating in October, leaving many investors wondering "What now?". The markets are downright spooky right now, spookier than clowns. I hate clowns.

So, what can you do?

1. Be creative and get frugal with your Halloween costume this year. I once brought a box of cereal and a knife as my costume (I was a "cereal killer").
2. Make sure that to avoid these truly scary mistakes with your investments.

1. Investing only in "cool" stocks

In case you didn't notice, it's not 1999 anymore. When my friends discuss stocks (which is pretty rare, although more common lately), someone will without a doubt name drop a hot tech stock. I hate this.

Just because you own a few shares of Dell (down 52% this year) or Yahoo! (down 50%) or Apple (down 53%) doesn't make you cool. It just makes you un-diversified and ignorant about asset allocation. Don't name-drop tech stocks. It's really not cool. Don't only own tech.

2. Not taking advantage of free money

There may be no such thing as a "free lunch"... but there are plenty of opportunities for free money in your investment portfolio. Many companies offer 401K matching, reduced company stock purchases and more ways to get "free money".

3. Buying on a "tip"

Stock "tips" are for suckers. Any "tip" you hear on the street is either

1. already known by people with way more money than you.
2. complete bull, made up by people with probably less money than you.
3. insider information that you can't trade on anyway.

4. Too much company stock

When you're able to purchase stock in your employer at a significant discount, you should do it. Otherwise, you need to diversify away from your company and its industry. If you get laid off, not only is your stock probably down, now you're out of a job.

5. Panic selling

Just remember this: Every time you sell, someone else is on the other end of that sale, buying. What are they thinking? Are they panicking? Set specific stop losses or specific dates for selling parts of your investments. Don't sell on fear or emotion.

6. Not auto-investing

Make your investments automatic. Don't try and time the market. Nearly every broker or mutual fund worth its salt will let you auto-invest. Do it.

7. Blindly following a bozo broker

Do you know how your broker is paid? Find out. Don't leave your money in the hands of someone you doesn't have your best interests at heart. Unscrupulous stock brokers will be looking for scared money right now and will promise the world. Don't fall for a bozo!

Have a safe and fun Halloween!