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The Top 5 Ways to Be a Better Investor

May 25, 2012 | Comments: 0 | Views: 95

Do you make these 5 investing mistakes? So many people make several mistakes which can suck the profits right out of their account. These mistakes aren't commonly known - but they steal profits just the same.

Even worse, sometimes it seems like the entire investment industry is out to force people to make these mistakes - because the mistakes you make can make a lot of money for brokers and advisors. It's tragic, because these mistakes can be avoided with a bit of effort.

Here are the top 5 must avoid investment mistakes:

#1: Don't Go "All In"

When someone calls out "All In" during Texas Hold-em, it's exciting. They could win everything. But what makes it so exciting is the risk of losing it all. Going "All In" can end the game in just a few seconds. Going "All In" is not something you want to do with your money. It's too risky. Sadly, 90%+ of investors do go "All In" by placing a majority of their money in the U.S. stock market.

This almost guarantees them a high level of risk and inconsistent profits.

The returns of the U.S. stock market over the last 15 years has been extremely volatile - and most people hate the surprise losses in their account which seem to happen with alarming frequency. Don't go "All In" with your account.

Invest in other markets like commodities, bonds, and foreign markets.

#2: Lack of Focus

This is the flip side of the "All In" mistake. Having too many investments is almost as bad for your account as going "All In".

It can seem safer to have many different investments, but "diversification" is more complicated than that and if you choose too many markets in which to invest, it's not really safe at all. An account with too many investments ends up imitating the returns of the stock market, which as we know, can be extremely risky.

Say a person buys a small cap mutual fund, a large cap mutual fund and then a bit of a value fund, plus a little bit of a tech fund thinking they are "diversifying." It turns out a portfolio like this is almost exactly the same as just buying the S&P 500. Once a portfolio gets beyond a medium level of diversification, it quickly becomes riskier.

And brokers do not make this easy to figure out since in most cases they make their money per trade, so they actually encourage you to trade more despite the fact that you will probably lose more by doing so.

To beat the market as an investor, you'll need to be different than the market. It's a fine line between going "All In" and having too many investments in your portfolio - but you'll need to walk this line to beat the market.

#3: Having No System in Place

This has got to be the biggest mistake most investors make. Novice investors get lucky a few times and think they have it figured out.

The best investors have systems for beating the market - and they follow a pre-set pattern of success over and over again. Warren Buffet doesn't just randomly buy stocks. Mr. Buffet follows a system. It's given him massive success on many stocks over a period of decades.

It is not his skill which made him one of the wealthiest people on the planet. Mr. Buffet became a billionaire through his investment system, a system built on his skills and insights. The insights are great, but taking advantage of those insights again and again is what made him wealthy.

#4: Making Things Too Difficult

This is a less common mistake but extremely frustrating for some people. Some people make their investing too hard to do consistently.

Many people learn enough about the markets and investing to be profitable investors but then make the mistake of making the actual process of investing and trading too hard to do.

What does this mean? For example, it's pretty easy to find investment systems which work well. Momentum Systems work - so do Value and Small Cap investment systems. If you shop a bit you can find one.

But good Value and Small Cap investing often require a huge time commitment. You'll need to devote significant time every week - every day - to searching out quality investments. I recommend Momentum Trading for this reason.

Any investment system can only work if you are consistent. This means that you must find and make the investments again and again, month after month. That means that you'll need to do this over a period of years to make real money.

So when you are looking at systems, whether you purchase a system or create your own, it's not very practical to use a system that will take 20 hours a week to uncover good, profitable investments. After all, the purpose of investing is to make money to enjoy more of the finer things of life, right? If you are spending all of your time on the investing, you won't have any time left for anything fun.

Here's the rule: Any worthwhile investment system needs to be very easy to do. It needs to be easy to do over and over again.

#5: Watch for High fees

Paying high fees is a major account killer. This is undoubtedly the worst mistake. It's the worst mistake out of this entire list, because high fees make profitable strategies unprofitable.

That's right - when your fees are too high, profitable strategies become unprofitable.

Even the best investments do not survive high fees. If you fix just one mistake today, fix this one. Make sure you are paying low fees. Look at discount brokers like eTrade, TD Ameritrade, Merrill, and others. Trade Exchange Traded Funds (ETFs) instead of Mutual Funds.

Many people don't have time to actively trade the market. They want something which makes money, has low risk, low fees, and still makes good money.

The advice most people get from their brokers is awful. They pay huge fees for "diversification" which end up making them match the returns of the market, and also exposes them to huge risk in the stock market. They get the worst of all worlds, and pay a fortune for it.

Low fees, proper diversification, a system that's easy to execute, repeatable success, and Minimal Risk are the only ways to really succeed as an investor. When you are investing, be aware of these account killers and you can truly beat the stock market.

Copyright (c) 2012 Trend Following 101

Michael Sankowski lives in Oak Park, IL and has been a professional trader for 20 years. He's traded billions of dollars on four continents and is a well-known financial writer. He's a CFA, CAIA, and has created patented Futures products. He is President of Trend Following 101 which sells winning trade recommendations and trading tutorials.

Source: EzineArticles
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