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Sunday, September 23, 2012

The Seven Deadly Blunders Investors Make

In any investment option, there are several mistakes that may lead to its failure. As an investor it's important to know some of the mistakes that investors before you have made. If you wonder why some investment din't work, below are some of the greatest and most common investment blunders that could have led to  their collapse.

1. Thinking that the future performance can be predicted by past returns of an investment.
This is one of the hardest things to figure out, since, even the smartest and most experienced investors have been a victim of this mistake. Most people assume that just because an investment did well in the past, it will still do great in the future. This is not always true because of two factors.
One, the value of the good investment has already been incorporated in the asset's price and
Two, the investment success may have been due to just sheer luck.
However there are always some investments that will do better than the market.

2. Putting everything in one basket.
Every investment despite how solid it may seem always has a risk of failing. It may be hard but try to be a diverse investor to be on the safe side. A real diversification is where you invest in different types of assets; you must also make sure there is negative or no correlation between them. This means that a change in value of one product should give an opposite reaction to the other.

3. Mistaking a business for an investment.
A business will need a lot of your time, expertise and attention, while an investment less time is required. a person with a full time job is not suitable for a business since he/she does not have a lot of time to attend to it e.g. a small apartment with few units is an investment, while a large boarding house with hundreds of boarders is a business since it demands lots of your attention.

4. Not considering your investment horizon.
Investment horizon is the time duration you are expecting to liquidate your investment. A good investment is where you can access your money when you need it. This investment blunder is most experienced in the stock market. Basically stocks should be profitable after some time but this does always happen since values fluctuate. This makes you wait for years or you may even be forced to turn your assets into liquid. A minimum of ten years is the best minimum investment horizon for stocks. Before you decide your investment option study both your short-term and long-term needs and choose an investment that you can withdraw without much loss.

5. Not thinking about effects of inflation.
When setting your financial goals, keep in mind the effects of inflation. Inflation negatively affects an economy; a not so well planned investment may even collapse.

6. Getting the wrong information.
This is a common mistake some investors make; they get information from unreliable sources and jump into investing their money. Go to a professional who will accurately answer all your questions, so that you can have all the knowledge before you make any decision.

7. Greed
Greed is one important trait in investment. Warren Buffet advised that you should be greedy when others are afraid. However, too much greed can only hasten the rate at which you lose your money. When the deal is too good, think twice', you have heard this many times before. Before you invest your hard earned money in that investment that seem so good and profitable think carefully about it or you may end up losing you money. This is because some of those investments are not really good

Conduct a thorough research on the area you intend to invest, think carefully, dont rush, then make sure you avoid the above investment blunders in order to keep your investment alive.

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