A habit is something that a person does often in a regular and repeated way. There are certain habits that can ruin your portfolio. Make sure you aren’t following these habits:
1. Paying too much in fees. Mutual fund fees can ruin your portfolio. Always know how much you pay in fees. In a previous blog post I showed you how to figure out the true cost of owning your mutual funds.
2. Buying high, this applies both to stocks and mutual funds. When the stock market is riding high, everyone and their mail man thinks they can’t lose. Especially when your neighbours, friends, and colleagues are making money it’s hard not to resist the herd mentality, and jump into the market. The stock market is the only place in the world where people buy more when prices rise and sell when prices are dropping. Buying high almost guarantees that you will not make any money from your investments.
3. Selling low, again this applies both to stocks and mutual funds. When the stock market is falling, everyone gets scared and starts to sell in a panic. When you sell low, you’ve solidified your loses. Think about other purchases in your life, food, electronics, furniture, and clothing. Don’t you buy more when things go on sale? The same applies to stocks and mutual funds; you should buy when prices are low. Dividend yield (see number 5, in my previous blog post) can help you determine when a stock is undervalued.
The great thing about habits is that they can be changed. The keys to changing your bad habits are education and positive action. First you need to gain the knowledge (education) and understand what the right steps are. Next you need to take positive action and make the change; otherwise you’ll continue to make the same mistakes.
The solution is simple, stop paying mutual fund fees, learn how to invest the Simply Investing way, buy low sell high, and then enjoy a rich life!
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