Avoid Basic Investing Mistakes

On 12/11/2009, in Investment Concepts, by Jordan Wilson

Beginning to invest while you are young is a smart thing to do.

It takes self-discipline to consistently set aside a portion of your earnings each month. As you see the total asset growth that a relatively small monthly contribution brings, it will reinforce that discipline to save for the rest of your life.

Because you are young, you can maximize the benefits derived from the power of compounding. If you are unfamiliar with this term, I suggest you review my creatively titled post, “The Power of Compounding.”

With a longer time frame you can also take on more prudent risk in the investments that you make. Higher risk usually means higher potential for returns. And with compounding, a higher potential return can have a significant effect on your portfolio value over time.

The key with risk is to be prudent. That eliminates any investments along the lines of Black 33 on the roulette wheel in Las Vegas. If you take on too much risk and end up losing your initial capital, that is money that will never be there to accumulate. Think of it as the power of compounding in reverse.

Besides taking on too much risk in your investments, there are other issues to consider. We looked at investing based on news headlines or “noise” in my earlier post, “Simplify Your Investing Life.”

To read more about issues that negatively impact investors, I suggest you read Hillary Fazzone’s very good article entitled, “Newbies: Avoid These Investing Mistakes.”

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