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Avoid these Common Investing Mistakes

While in a hard to believe, even the great Warren Buffett has made one or two mistakes during the 40+ years that he’s been investing. The reason we bring this up is that, for most of us mere mortals, mistakes are certainly a part of the game. The real trick however is to recognize your mistakes and, hopefully, learn from them. To that end we put together a list of some of the most common investing mistakes so that, rather than having to make them yourself, you can read about them here and avoid them completely. Enjoy.

  1.  Relying too much on Margin. While it’s known in investment circles as ‘free money’, the fact is that margin, or borrowing money to leverage your investments, can sometimes be exactly the opposite. If your margined investments start to lose and you used too much borrowed money to buy them, the losses that you have will be greatly compounded. The fact is, you’re going to eventually have to pay that money back and, if you weren’t wise when using the margin, the financial pain that you’re going to feel may be great. The lesson here is simply this; use margined sparingly or, if you can, not at all. Better to wait until you have a lot more experience before using this high risk investment strategy.
  2. Using ‘tips’ to buy stocks. This one’s relatively easy to explain. If it’s been used to get a laugh on a television sitcom, Jerry Seinfeld has used it in one of his routines or your neighbor Bob has told you that he’s positive that this is going to be this stock tip that ‘sets you up for life’, following it will probably means that there is a cream pie to the face  in your future. To be perfectly frank, taking a tip in and of itself isn’t a big mistake but not following up on your tip and researching it thoroughly, as well as considering the source, is just plain dumb, financially speaking. The lesson here is that you should always thoroughly research and do your due diligence on any tips that you might get, no matter the source.
  3.  Thinking that you can become a day trader overnight. For the inexperienced investor day trading should definitely be avoided. Yes we’ve heard about investors who spend all day buying and selling stocks from their computer and we’ve also heard about how they make thousands on one trade while sitting in their jammies sipping their coffee. The fact is however that, for those that actually can and have done this, they have also put in a heck of a lot of time and energy to get where they are and, in most cases, have also lost more than their fair share of times. The average day trader is a person who has years of training, lots of patience and an inordinate amount of discretionary capital to work with. The lesson here is that, unless you’re going to make it your actual career, day trading should never be looked at as a hobby (unless you have all sorts of money to burn).
  4.  Many people who have had early success in the stock market tend to overestimate their abilities. This can be a huge mistake and, for every new investor who gets swept up in the euphoria of their success, there’s 10 others who have been met with massive failure and the loss of substantial amounts of money because they overestimated just how good they actually are. The lesson here is simply that, even if you have one or two early successes, you still need to take things slowly, put in time for research and strategy and constantly ask yourself ‘can I do better?”. If you really want to be successful as an investor in the stock market, patience is definitely your ally as well as a smidge of humility.
  5. Taking your eye off of the ‘big picture’. While familiarizing yourself with investing terms, techniques and other technical jargon is all good and well, most new investors forget to look at one of the most important things about investing; trends. In fact, most professional investors have a saying that goes “the trend is your friend”. The fact is that it’s easy to get caught up in the details of investing and not see the forest for the trees. The lesson here is that, while knowing about techniques and strategies is an excellent idea, knowing how to look at the big picture, break it down and see exactly what’s going on at any given time is much more important.
  6. Adding to your losses because you’re too proud to let go. Professional investor William O’Neil will tell you that, once a stock that you own reaches 7% lower than the cost that you purchased it, it’s time to sell it off. No matter what. The mistake that many investors make is that they are too proud to admit that their pick was a bad one and hold on to the stock much longer than they should. The lesson to be learned here is that self-discipline and having a plan are both necessary when you are in the stock market and any pride or emotions that you have should definitely be checked at the door.
  7. Getting duped by ‘bargain’ stocks. Here’s a tip; most stocks that are low are that way because something happened that put them there. It’s extremely rare to find a stock that’s mispriced and, even if everything does check out, in many cases even the best laid plans can go bad when it comes to stocks that you bought at a value that you perceived was ‘excellent’. The lesson here is that price alone should never be the determining factor in your decision to buy a stock and that you’d be far better served to always do your homework and your due diligence before purchasing a stock, no matter how good the price looks.

We hope that the mistakes that we’ve shown you today will help you to avoid making them yourself in the future. Investing, like anything else that’s worth doing, is worth doing not only was the Susumu be out in modern web my élan. If you educate yourself, take advice from professionals and don’t let your emotions get in the way, avoiding the mistakes above is definitely possible. If you have any questions about investing or need advice about your finances, please let us know and will get back to you with options and answers as soon as we can.

The Epic Roundup: September 7th Edition

Welcome to the September 7th edition of the EPIC ROUNDUP!

Below you will find a list of blogs that we especially enjoyed this week

Learn how to ensure a great real estate investment at Invest it Wisely.

Dom at Your Finances Simplified is quite the real estate investor…I was happy to see he finally went a month without any home repairs at his rental properties.

As a married man I appreciate this article…Couple Money explains how to deal with financial conflict as a couple.

 

OK, last but not least, a huge THANK YOU to the carnivals below for thinking highly enough of Epic Finances to include us:

Carnival of MoneyPros hosted by Rather Be Shopping
Yakezie Carnival hosted by Frugal Rules
Finance Carnival For Young Adults hosted by Mom And Dad Money
Carnival of Retirement hosted by Bite The Bullet Investing
Carnival of Passing Investing hosted by My Money Counselor

Income Protection Insurance Provides Peace of Mind

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Are you the sole bread winner in your family?  Does your family depend on your earnings to survive and get by?  I never gave much thought to these questions when I was younger, and then this past summer I got married.  Now we are thinking about having a family in the near future, and with that comes additional financial responsibilities.  So within a matter of a few years I have gone from thinking about myself to worrying about an entire family.  This is when you need to start asking yourself who will take care of your family should anything happen to you, and how will you financially survive if you become ill, let go, or unable to work for any reason! Australian insurance comparison site Choosi recently launched an advertising campaign that communicates how important precautions such as income insurance can sometimes be overlooked and this should not be the case.

In order to protect your loved ones you should consider income protection insurance.  This insurance will provide a safeguard in case you should ever be left unable to work.  Likewise, if your employer has financial issues and experiences employee cutbacks then having income protection insurance can make sure you are paid regardless.    The benefits are vast and many.  You can choose the length of time you want your coverage to be in effect, which can last for 6 months to several years.  Also, your premiums could be tax deductible.

There aren’t many restrictions to who can apply and receive these types of benefits. I simply went online to compare policies using a site like Chooi to view the best income protection insurance available.  You and your loved ones will be thankful and have the peace of mind knowing that their lifestyles are safe and secure no matter what the future brings. In my opinion it’s always better to be prepared for the worst!

I found that generally speaking, income protection insurance pays out a certain percentage of your annual income when you are unable to work. All insurance policies are different and often you can choose from the following options;

1. The percentage of salary that is paid out. Most policies can offer up to 75% of your regular income and there are different levels of cover to choose from.

2. Waiting time before you are eligible for a payout. This means the minimum period you need to be off work before the policy pays out and can be from 2 weeks to 2 years or sometimeslonger.

3. The benefit period.  This is the amount of time your insurance covers you for and this can vary from 6 months up to 5 years.

Your premiums will depend on the cover you choose. But thegood news is that in most cases the premiums are tax-deductible.To find the best value for money policy, you should look to compare income protection insurance through a comparison site.Depending on your situation, if you are self-employed or contracted, the situation can be different. Insurers don’t usually provide cover to individuals without a consistent income – you should speak to an insurance provider that specialises in income protection to see if cover is available for you. Every situation is different, so I’d definitely recommend doing your own comparisons and research to find out the best options for you!

 

Epic Finances Returning After Hiatus

I will begin posting again after realizing that my portfolio performs better while actively posting. I will no longer show my gains/losses because I find this too personal. My portfolio is down slightly, but overall up about 40% YTD.

Posts to come.

 

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