COMMON INVESTING PITFALLS TO AVOID

By: TimoStevens (Wealth Sage, 2009)

The following are common mistakes many people make when considering what to do about investing.

1. Doing nothing.

There is no guarantee that the market will go up the first day, month, or even year that you invest in it. But there is one guarantee: Doing nothing at all will not provide for a comfortable retirement.

2. Starting late.

Postponing your investing career is second only to not investing at all on the list of investment sins. The earlier you start the better off you are, because your investment returns will need time to compound.

3. Investing before paying down credit card debt.

If you have money in your savings account and you have revolving debt on your credit card, pay it off first, then think about investing.

4. Investing for the short term.

If you'll need your cash next year for a down payment on a house or for the family vacation, then invest your money in shorter term instruments such as, money market funds or CDs. Otherwise, invest money in the stock market that you won't need for at least three years, and preferably five years or longer.

5. Turning down free money.

You'd never turn down a dollar if it was offered with no strings attached. That's what you're doing if your company offers a retirement savings plan with an employer match and you're not participating. Take advantage of all tax-advantaged, employer-matched savings programs.

6. Playing it safe.

If you're young, most of your investing dollars should be in the stock market. You have enough time to weather any dips in the market and to reap the rewards of long-term gains. Although you may want to transition into bonds later in life as you depend on your investments for income, stocks should make up a large portion of the portfolio of every investor.

7. Playing it scary.

Not every investment is for everyone. Even if you're a daredevil, you shouldn't pour all of your money into something that could end up going down the drain.

8. Viewing collectibles or lottery tickets as investments.

If old comic books, Barbie dolls, and abandoned exercise equipment could be used to fund retirements, do you think the stock market would exist? Probably not. Don't make the mistake of thinking your jewelry, those Beanie Babies, or the lottery will provide for you in your latter years.

9. Trading in and out of the market.

The best approach to investing is the long-term one. Pick your investments well and you'll reap greater rewards over the long term than you had ever dreamed possible. Trading in and out of the market and will saddle with fees that chip away at your returns, and you'll potentially miss out on gains that long-term investors enjoy with much less effort.

Source: Why Should I Invest? - Motley Fool Staff