Investing is a great way to build a solid financial future. However, there are some pitfalls to look out for. If you can avoid some of these mistakes, then you stand to save yourself thousands of dollars.
- Avoid the fees (and understand them)
When you start looking through funds to invest in, you’ll notice that each comes with a set of fees. In many cases, the fees can range from 0.5% to 2%.
Although that tiny swing in percentage points might not seem like an important detail, it can make a big difference in your portfolio’s growth. In fact, a 2% fee could add up to hundreds of thousands of dollars over the course of your investing career.
When you decide to invest, you should make sure to research the fees and minimize them wherever possible.
- Prepare with your risk tolerance in mind
When you choose to invest your money, you should assume that you might lose some of your investment along the way. The market will rise and fall. Although it historically has risen through the years, that is not an indicator that it will continue to rise steadily. It is likely that there will be some dips along the way.
It is important to understand your risk tolerance and consider that as you invest your money. Take our quiz to gain a better understanding of your risk tolerance.
The best way to mitigate your risk in the market is to diversify your investments. You don’t want to pool all of your investments into one particular company that goes under. Instead, you want your investment spread out in many sectors of the market. If one area of the market falls, then you will not be left with a sinking portfolio.
- Rebalance along the way
You should stay on top of your investments over time. Make sure that you are still on track with your objectives and the timeline still fits into your goals. The market will rise and fall, you’ll need to rebalance to ensure that you don’t leave all of your eggs in one basket.
- Don’t try to time the market
Remember, investing is a long-term strategy to build wealth. You should not try to time the market by buying low and selling high. Not even the most advanced investors can consistently beat the market. Instead of looking for short-term wins, focus on the long-term gains.
Although you won’t build wealth overnight through the stock market, you can with many years of continued investment.
- Don’t forget about taxes
My final tip is to remember taxes when you are planning out your investments. There are different strategies that you can use to lower your potential tax burden, but they require careful planning. If you aren’t sure about the tax implications of your situation, then consider talking to a tax professional.