Few investment strategies are entirely free of risk, but here are some mistakes that can be avoided.
1. Putting all your eggs in one basket
"One of the main investment mistakes I see results from investors not determining their level of risk and the type of investment mix that will allow them to sleep at night," says Tom Zaks, an investement advisor with RBC Dominion Securities. By having the right type of mix (e.g., stocks, bonds and cash), you can avoid issues with such things as emotional reactions to market downturns, like we have recently seen, says Zaks. "Diversification also allows you to avoid the mistake of putting all of your eggs in one basket."
2. Focusing on paying down your mortgage while higher-interest credit card bills pile up
"Many people are preoccupied with paying down their mortgage, while credit card bills pile up," says Aaron Sobeski, a financial consultant for Investors Group. "Consolidating high interest credit card debt into a line of credit can be a smart move. People must make sure they are serious about getting their finances in order before traveling down this road, by cutting up credit cards they don't need, [requesting] substantially lower credit limits on one or two cards and paying their monthly balance religiously."
3. Fixating on short-term success
"A regular review of your investment strategy and asset allocation is a good thing," says Zaks. "Chasing performance on a daily basis or trying to put your money into yesterday's hottest stocks can be a bad thing. Investors should try to avoid getting frustrated and selling too quickly by looking for instant results from an investment. Warren Buffett's approach of buying good quality investments for the long term usually wins in the end," he says. Think tortoise, not hare.
