Investing is a critical part of building financial security, but it comes with its share of pitfalls. Whether you’re a seasoned investor or just starting, avoiding common mistakes is key to success. Here I explore the seven most common mistakes that investors often make and provide insight into why they can be detrimental to your financial health. Understanding these errors can guide you to make more informed and strategic financial decisions.
Mistake #1: Failing to Plan
A 2022 survey found that one of the biggest money regrets among investors is not investing sooner. While 58% of those surveyed regretted not starting to invest sooner, 56% said they needed to reconsider how they invest. The fact is that many people don’t plan because they procrastinate, and they procrastinate because they don’t have a plan. This creates an endless loop that’s hard to break. If you’re stuck in this loop, hurry to get out of it and make a plan as soon as possible.
“He who fails to plan is planning to fail.” – Winston Churchill
Mistake #2: Thinking a Financial Plan is Solely About Investing
Many people think financial planning is just about investing money. But that’s not the whole story. Financial planning includes many parts, like setting goals for the short, medium, and long term and figuring out how much money you need to achieve them. It’s also about making a budget, dealing with any debt, and planning for retirement. A 2021 survey conducted by Debt.com found that 80% of people were budgeting, but only 4% were getting help from a financial advisor.
In addition, financial planning also means making sure you have the right insurance and planning how you want to give money to charity or what you want to happen with your money when you die. Even as a doctor, you have to think about how your job connects to your personal money plans.
Mistake #3: Not Communicating With Their Partners About Money
Talking about money with your partner is very important. A survey showed that 22% of divorces happen because of “money issues”. If you are married or have a partner, both of you should be part of the money decisions. Even if one person is more involved with money, both partners have their own visions and wishes regarding money. One may want to travel, while the other dreams of a log cabin. They may also have different risk tolerances. Experienced wealth advisors know that the ideas and wishes of both partners must be part of the financial plan for it to work well.
Mistake #4: Trying to Time The Market
Trying to anticipate the market, or trying to invest at the ideal time, often leads to mistakes in personal finance as well as being extremely demanding. According to a research by Charles Schwab, even if you invest at the worst possible time, you will still make money. Whether you invest at the best time or not, once a year or monthly, you are guaranteed to make a profit if you invest regularly and immediately instead of trying to anticipate the market. Consistency and patience usually pay off.
Mistake #5: Not Knowing Their Risk Tolerance
Mistake number 5 that investors often make is not understanding their risk tolerance, or how comfortable they are with losing money in their investments. This is where a good financial advisor can really help. They can ask the right questions to figure out how much risk you can handle and then give advice that fits you. It can stop you from making big mistakes that could cost you a lot. Some people who stayed with their investments, even during bad times like the financial crisis of 2007-2008, ended up making a lot of money later on.
Mistake #6: Keeping Up With The Joneses
The typical image of the Joneses includes a fancy house, luxury cars, and expensive vacations. But the truth is, they might be broke. A 2020 survey found that 66% of people couldn’t keep up with their debt payments or had to make big sacrifices to do so. This shows that most people can’t really afford the flashy things they show off.
You shouldn’t compare yourself to others without knowing their full financial situation. What looks like wealth may just be a mask for debt. True wealth doesn’t show, and you can’t flaunt your real financial success like you can a fancy car.
Mistake #7: Not Getting Help
Both inexperienced and seasoned investors can greatly benefit from professional financial guidance, but many myths prevent people from seeking this assistance. Some believe that financial advisors are only for the wealthy, or they might find the idea of working with an advisor intimidating. Others worry that an advisor will invest too riskily, or think they should only work with someone local. These myths can hinder individuals from receiving valuable support and tailored advice. A good financial advisor can align with your needs, work in collaboration with you, and add substantial value to your financial well-being.
Navigating the complex world of investing requires awareness and strategy. These seven mistakes, drawn from years of observation and analysis, are common stumbling blocks that can hinder financial success. By recognizing and learning from these mistakes, you can create a more secure and prosperous financial future. If you found these insights valuable, I invite you to delve deeper into these topics and discover practical case studies and examples by downloading my free eBook.
As a strategic wealth and financial advisor, I help physicians, dentists and entrepreneurs to invest more effectively and grow their wealth. Don’t hesitate to request a meeting so that we can discuss your situation, your goals and your dreams. Backed by seasoned Assante professionals, The St-Georges Group’s team can offer you wealth management advisory services that will help you achieve your financial goals and give you peace of mind.