Sidestepping the Investing Pitfalls

Lewis Schiff

Question of the week
I've saved up a nice little amount and am ready to start investing it. However, I dread making a mistake with this hard-earned money. What are the common errors I should be on the lookout for? --Ann L.

Dear Ann,

You're absolutely right that sometimes what you don't do is just as important as what you do, and smart to be looking out in advance for the pitfalls you might encounter.

When we asked Armchair Millionaire community members about their investing regrets, we heard about everything from investing in time shares and mobile homes to investing too much (or too little) in technology stocks. Here is just a sample of the comments we received:

"My mistake was not understanding the concept of time value of money until I took a personal finance course in college at age 27. So I foolishly spent money made in my teens and twenties without saving or investing it, and started saving at 30 instead of 20." --Mike

"I trusted too much in the stock of the company that I worked for. I had the feeling that as long as I got good results, 'my' company would do well, and therefore only bought stock in this one company." --Maarten H.

"Before knowing better, I bought mutual funds with a load. Never again! The funds' performance wasn't that good, either." --Chris H-W.

So even though the investing world may seem fraught with land mines just waiting for you to take the wrong step, it's really not that bad. With a bit of clear thinking about your choices, you'll do well. My guide will get you started.

The Armchair Millionaire Guide to Steering Clear of Investing Hazards

• Be informed. Read widely--there are a number of excellent, common sense investing books available. Talk to friends who've been successful with investing. If your employer offers educational programs about investing in your 401(k), take advantage of them. And it you feel you need professional advice (I recommend it if you have a complex financial situation), see a fee-only financial advisor.
• Be skeptical. If it sounds too good to be true, it probably is. Scams and schemes are fairly easy to spot, but you should cast a skeptical eye even on legitimate investments. Don't take everything you hear about an investment at face value. Just because a mutual fund has no load, for example, doesn't mean that it doesn't still have real costs. And the fact that a fund may have performed well last year has no bearing on how it might perform this year, or next.
• Go slow. Achieving your most important financial goals, like sending a child to college or funding an abundant retirement, happens over years. A small but regular monthly investment in your financial dreams will get you much further than any short cut ever will. The old cliché is correct: Slow and steady really does win the race.
• Don't hesitate to start. Don't be so worried about making a mistake that you fail to invest at all. If you wait until you're an expert to start, you may never even begin. The best way to learn is to start small and learn from your mistakes.

THE BOTTOM LINE: Investing is a lifelong journey and like everything else in life, wrong turns are unavoidable. But by thinking your decisions through carefully, you'll minimize those mistakes and put yourself on the right road.

From "Ask the Armchair Millionaire" featured each week on CNNMoney

Go to the complete archive of Ask the Armchair Millionaire

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