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Friday, December 9, 2016

The Ultimate List of Painful Financial Mistakes

Warren Buffett is arguably the greatest stock investor that ever lived. He didn't become so by chance but by learning the ropes from his guru, Benjamin Graham, and by following a few basic investment rules.

Two of his most famous rules are:-

Rule No. 1: Never lose money
Rule No. 2: Never forget Rule No. 1

Does Buffett practice what he preaches? Of course he does. That is why he is the greatest. But the two rules should not be interpreted literally. If you invest in stocks, you are going to make a few wrong selections that will lead to loss of money.

In fact, 'losing money' can be a great learning experience - as long as you don't turn it into a habit. What Buffett really means by the two rules is that you need to follow a well-planned strategy that reduces the possibility of losses and increases the chances of making money in the long-term in spite of occasional losses.

Even if you make a lot of money from stocks, it can be difficult to manage and grow your portfolio unless you know how to avoid the following financial mistakes listed by Patrick Bourbon in a recent article in investopedia.com:

1. Not diversifying your wealth.
2. Not understanding the risk in your portfolio.
3. Investing in tax-inefficient portfolios.
4. Doing nothing/failing to build a customised financial plan.
5. Not saving enough or saving too late.
6. Overlooking your advisor/broker fees.
7. Failing to rebalance your portfolio.
8. Not having a sufficient emergency cash reserve.
9. Being overconfident in your own abilities.
10. Chasing past performance.
11. Investing based on news or reacting to short-term returns.
12. Emotionally buying and/or selling.
13. Trying to time the market.
14. Selecting the wrong stock/mutual fund.
15. Not taking into account the effect of inflation.
16. Buying what you don’t understand. 

Read more.