Whether we are talking about investing in the stock market, real estate, material objects, or something else, I’m sure all of us have heard a story about someone losing their money by making some sort of investing mistake.
While we all hope that we will never make the same mistake and lose some or all of our money, that’s easier said than done.
No one wants to lose their money, possibly have to start all over with their investments, or risk their retirement because of a simple mistake.
While I am definitely not an investing expert (yet!) as you can tell from my recent post Why You Should Invest and Save For Retirement – Plus a Personal Finance Confession Fail (basically an investing 101 post), investment mistakes are something I want to try to avoid, especially if they are the easy ones.
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Below are five easy ways to lose money and become broke by making common investing mistakes:
1. Not being diversified is an investing mistake.
Not being diversified is a common mistake investors make. I have seen too many people take a large risk and have all their eggs in one basket. This can mean you are investing in just one company, using just one real estate investment to hold you over, only investing in material goods, and more.
This can be a disaster. If whatever you are investing in tanks, then your money goes down with it. It’s a pretty big risk to take.
Diversifying your investments is always a good idea. Whether your investment is primarily in a fund (we like VTSAX) or you are in the stock market, real estate investing, and more, diversifying is something that most people will want to do.
2. Using another person’s investing moves and exactly copying it is an investment mistake.
Okay, sometimes other successful investors have great ideas, don’t get me wrong. However, that does not mean that if you just copy what someone has done in the past that it will work out perfectly for you and you will become rich.
If it were that easy, everyone would just be copying the exact buys of all the billionaires out there.
You have to think about timing, whether the other person just had pure luck, the current state of the economy and more. I have seen far too many people make huge investing mistakes by just completely copying what someone else has done in the past.
True story: I know someone who took out a large amount of money in the form of a bank loan, and invested the exact same way someone else did. Well, it turned out that he lost all of his money because the same factors were not in play when he made the same investment. So, he lost all of his money AND he has to pay interest on the loan.
Another reason this can be a mistake is if the person is just a scammer. They might be telling you to invest only so that they can make money. This leads to number four in this post which you should definitely read.
3. Pulling out whenever the stock market falls is a retirement mistake.
So many people make this investing 101 mistake. I remember when I was younger, a friend’s parent told us that he withdrew his money almost whenever the stock market dropped even if it was just for a few days. This means that he was almost always selling low and buying high (a huge mistake!), which was costing him a lot of money.
Well, one year he ended up losing over $100,000 in a very short period because he panicked, and if he would have just left everything where it was, he probably would have been fine right now.
I remember him telling us that he took everything out because he thought that once you “lost money” in the stock market, that it was all just completely gone.
This leads to my next point…
4. Not doing your research when it comes to investing.
Okay, so some of the mistakes in this post might actually work for you, but you have to do your RESEARCH.
Investing without doing any research is a scary thing to think about. I’m not saying that everyone needs to be an investment expert, but at least learning about the fundamentals of investing can greatly help you.
You should earn and understand common investment terms, what different investments are, you should know what you are invested in, and so on in order to be more knowledgeable about where all of your money is.
An example: If you leave all of your investing to someone else, then you need to do your research on this person and make sure they know what they are doing. There are frauds out there!
5. Not investing at all is a common investment mistake.
If you skip out on investing entirely, then this can cause you to lose money and become broke.
I have heard from way too many people who have said that they are better off by keeping their money under their mattress or in a basic bank checking account, and it just makes me cringe. I made this mistake for far too long and I know I lost out on a decent amount of money.
By skipping out on investing, you are losing money due to inflation and the wonderfulness that is compounding.
What investment mistakes have you seen?
Do you know anyone who has lost major money by making an investing mistake?