Part of my role as a financial advisor is to help clients identify and avoid common financial mistakes. As I've observed over the course of my 27-year career, even the savviest investors can fall prey to these pitfalls if they're not careful.
Here are a few common mistakes investors make:
Letting emotions drive investment decisions: Jumping in and out of investments based on fear, excitement or other emotions sparked by short-term market fluctuations is not usually a sound investment strategy. Attempts to "time the market" can leave you at risk for bigger losses and excessive stress if longer-term trends do not work in your favor.
A better approach is to start by understanding your risk tolerance. Ask yourself how you would feel if the market were down 5, 10 or 20 percent. What would make you lose sleep at night?
A good portfolio takes into consideration both your desired rate of return and how you will react emotionally to market volatility. If you are investing in the markets, it is best to have a long-term outlook and to understand that ups and downs are part of the deal.
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