investment mistakes to avoid-TRYING TO TIME MARKETS
The financial industry oversimplifies investing and sells market timing as an effortless path to riches – even in tough times. Market
timing seems so easy in hindsight. What’s more, plenty of professionals — including brokers, advisers and investment newsletters —
stand ready to offer you guidance on when to trim your exposure to stock funds and when to boost it.
Warren Buffett once said “We continue to make more money when snoring than when active.” Peter Lynch said “Far more money has
been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
Rather than make guesses regarding the direction of the market, here are some investment rules to follow:
Rule #1: Do not attempt to time the market. Statistically it is a certainty that a minority of the millions of investors can time the market in
the short-run – the problem is that very few, if any, can time the market for sustainable periods of time. Don’t try to be the hero, because
often you will become the goat.
Rule #2: Patiently make good investments, regardless of the economic conditions. It is best to assume the market will go nowhere and
invest accordingly. Paying attention to a hot or cold economy leads to investors chasing their tails. Good investments should outperform
in the long-run, regardless of the macroeconomic environment.
Rule #3: Diversify. In the midst of the crisis, diversification didn’t cure simultaneous drops in most asset classes, however ownership of
government Treasuries, cash, and certain commodities provided a cushion from the economic blows. Longer-term, the benefits of
diversification become more apparent – it makes absolute sense to spread your risk around.
An investment process that includes patience, discipline, diversification, valuation sensitivity, and low-cost/ tax-efficient products and
strategies will get you off the financial treadmill and move you closer to reaching your financial goals.