Scary Investing Mistakes...And How to Avoid Them

10/20/2017

Halloween can be frightening if you’re my dog who doesn’t like the scary floating ghost that my neighbors put out, or if you have a pumpkin spice phobia. However, as Wealth Advisors, some mistakes are even more terrifying! Keep reading for the top 5 things we wish all investors knew.

1. Trusting unverified sources – “The brother-in-law rule”

This is a trap we’ve all fallen into. You hear about a “sure thing”, or a business that is about to release a groundbreaking new product. You might also hear a TV investment professional talking about a “must buy” stock, only to have the price plummet as soon as you’ve run to the phone to call your broker.

It’s important to make sure that anyone you turn to for advice has impeccable credentials, such as a Certified Financial Analyst, a Certified Public Accountant, or a Certified Financial Planner.

2. Investing today with money you’ll need tomorrow

Investing is a great thing to do with your money, unless you’re expecting to use it soon. And by soon, I mean any time in the next 2-3 years. Whatever money you invest needs to be the kind that you can leave alone in case of a downturn. If you have money that you will need within the next few years, the safest place for it is in an accessible savings account or a safe investment like a CD.

3. Playing a Dangerous Game – Day Trading

Day trading should only be attempted by the most experienced investors. To be an efficient and successful day trader, you need the right equipment. Day trading software can cost upwards of $50,000, and you’ll need just as much money to maintain an efficient strategy. If you are anything like my terrified dog, and don’t handle stress well, I suggest finding a lower risk option to building your wealth.

4. Investing above, or below, your risk level

The name of the game is Risk Vs. Reward. You have to be pretty sure of yourself before you play. Investing is balancing risk with reward, and you need to know how much risk you can tolerate – which in turn will dictate your reward. If you can find the guaranteed reward with the total absence of risk, give us a call, we might have a job for you!

Contact us to take our Risk Assessment Quiz!

5. Ignoring Tax Considerations

“Nothing can be said to be certain, except death and taxes” – Benjamin Franklin

As a full service Wealth Management and Peer-Reviewed CPA firm, you’d be amazed how many savvy investors we see that don’t consider taxes when discussing investments!

• Lower tax rates for long-term capital gains – If you hold on to a stock for more than a year, you most likely qualify for long-term capital gains taxes, which in most cases id about half of what you would pay had you sold in under a year.

• MAJOR tax breaks on educational savings – I’ve said it before, and I’ll say it again. OPEN A 529 ACCOUNT!!! Let’s look at the numbers. If you need $50,000 to pay for the kid’s college, without a 529 you’ll actually need to save about $58,824 if you ignore the tax breaks available to you. You’ll need the extra $8,824 to pay the 15% long term capital gains tax that might apply.

• Saving for retirement? Tax Break!! – Take advantage of any retirement savings tax breaks that you can get your hands on. Does your company offer a 401k match? Congratulations! Do it! It’s literally FREE MONEY! You may also be entitled to invest in a Roth IRA, which offers enormous tax benefits. Contact us today to open a Fidelity Roth or 529!

So…what did we learn?

1. Making money is more fun than losing it.

2. There are many ways to make mistakes. One way to avoid them is to talk to a professional.

3. My dog hates Halloween.