My Top 3 Investing Mistakes and a Challenge to Other Bloggers

Written by The Dividend Guy on March 3, 2008

Burning Money

There are a lot of investing mistakes that people can make in the day-to-day or year-to-year management of their portfolios. The purpose of this blog is to talk about things I have done to avoid mistakes. I was challenged by a friend of mine recently to come up with what I thought were the top 3 investing mistakes that a person could make. The key was that it needed to be the top 3 and not the top 10 or even the top 5 - this required me to think long and hard to weed out the other bazillion investment mistakes to choose only 3. I then had the idea to cheat a bit - a way in which I could (with the help of the blogging community) come up with a much broader list of investing mistakes.

I would like to challenge other bloggers to come up with their list of the top 3 investing mistakes they believe are. This way, at the end we will hopefully have a huge list of potential mistakes that all investors can draw on to determine the best way to manage their portfolios. After presenting my own top 3, I will tag three other personal finance bloggers to create a post that presents their own top 3 list.

My Top 3 Investing Mistakes

1. Not creating and adhering to a properly structured asset allocation

The most important factor of a portfolio is the asset allocation, and the mistake is when people do not structure an asset allocation and choose to invest in a non-strategic or haphazard manner (i.e. buying a bit of this, and a bit of that).

2. Compulsively Checking Your Stock Prices

I believe this is a huge mistake that long-term investors make and the reason it is a mistake is that it leads to emotional responses. This constant monitoring in my experience has lead me to make decisions not with the facts but with my own intuition and feelings, which has burned me every time!

3. Keeping Your Investment Assets in a Savings Accounts

This seems pretty obvious, but I think it is amazing how many people only invest their money in cash as opposed to assets that have the potential for long term appreciation. A savings account does not provide any inflation protection and over time the spending power of the money in the savings account is reduced as the prices of goods and services rise.

Tag You Are It…

To keep this going, I want to tag the following three bloggers with their choices for their top 3 investing mistakes. I also challenge them to tag 3 other bloggers to see how long we can keep this going. In addition, if you would like to participate please post a comment directing us to your post with the top 3 investing mistakes - that would be awesome!

1. Mike at Four Pillars you are tagged

2. D4L at Dividends4Life you are tagged

3. CC at Canadian Capitalist you are tagged


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10 Comments so far

  1. 45free.com March 3, 2008 12:45 pm

    Comment number two is interesting. I remember reading an academic piece several years ago that attributed the increase in the “risk premium” demanded by the market to the explosion of quotes services available to everyone. The theory was, when you only saw your portfolio quarterly (or even annually), you missed a lot of the gyrations of the market but in the age of live real time streaming quotes on everyone’s screen, the perceived volatility increases and everyone demands a higher risk premium.

    One mistake to add to your list is “entering a trade without a plan”. When you get into a trade, you need to know why you are there and what will cause you to question your original thesis.

  2. Dividend growth investor March 3, 2008 3:03 pm

    I would like to be tagged as well.
    Three mistakes that I have done:

    1) Not having an investment plan or changing investment strategies too often. Without an investment plan, you are guaranteed to not reach your financial goals and be stuck in the mud forever.

    2) Buying into HOT sectors, which have experienced a strong uptrend over past periods. Buying stuff just because it is going up works for some time, untill your investment starts falling and you keep praying it will go up..which never happens.

    3) One big mistake is that I didn’t start investing at an earlier age. If I have kids, I would strongly advise them to invest their money from high-school summer jobs in index funds and just let the money compound forever.

  3. Four Pillars March 3, 2008 9:48 pm

    Thanks for the link - I’ll see if I can do it for Wednesday.

    Mike

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