Some things are so patently obvious that they become cliches. My early investing experiences taught me that the investing truisms, diversify and buy low, sell high, are actually true. Manage to do those two things well and you'll be well ahead of the curve.
1. Not diversifying
In my first job out of college, flush with the barest smidgen of investing knowledge, I put 100 percent of my 401(k) contributions into an aggressive growth fund.
Why not, I reasoned. I'm young and I want aggressive growth. Problem solved.
Shortly thereafter, the year 2000 rolled around and the dot-com bubble burst.
My aggressive growth fund tanked and I compounded the mistake by later quitting my job and cashing out my retirement plan.
Asset allocation plays a huge role in how well your portfolio performs over time. Typically when one part of the market goes south, another part is doing well. This Bankrate story, "Asset allocation for fund investors," illustrates a couple of ways to invest across asset classes in order to reduce risk.
2. Buying high and selling low
Around the same time as my initial foray into retirement investing, I opened a brokerage account to take advantage of some of the super-awesome dot-com stocks.
I only bought one stock and it did really well for a little while, until it went way down and I sold it and took a loss.
Dumping all your money in one stock, particularly if you're as painfully ignorant as I was, is somewhat analogous to showing up at the track with your life savings, saying "Put it all on number 4."
Not only did I not have a clue what I was doing, the big mistake was jumping on the bandwagon when the end of the ride was just around the corner.
Chasing performance can often lead to buying at a high price after all the savvier investors have already taken their profits. Hence the disclaimer, past performance is not indicative of future results.
It's hard to resist a bubble when you see everyone around you making out like bandits -- as the recent real estate debacle proves.
Have you made any investing mistakes?
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