Here are some of the dumbest investing mistakes you can make.
1. Putting Your Life Savings In One Stock
No company felt safer to invest in than General Motors (NYSE: GM) -- until bankruptcy. It's impossible to know what will happen with a company you invested everything in. For example, you buy 500 shares at $50 a piece in a technology company. Prices drop quickly when newer technology comes out. In a few days, your $25,000 investment is now worth $500. If you love technology, consider buying shares of a mutual fund containing technology stocks. Even then, don't make it your only investment and do your research as far as past performance and future forecasts.
2. Being Way Too Conservative
Short of stuffing money in your mattress and then accidently disposing of said mattress with your money still in it, one of the biggest mistakes you can make is this: keeping all your money in a savings account. First, if you ever do go over the half million mark in one account, you're no longer FDIC insured. Second, the current national average savings rate is 0.06 percent. It would take 30 years of depositing $100 per month to earn less than $300. Not exactly huge growth.
3. Trading Too Often
To someone who loves investing, there is nothing more fun than studying the stock market every day to figure out your next investment move -- that is until you're surprised to see $350 in trade charges racked up at $7 per trade (especially if you thought you were on a free trading promotion). Promotions expire. Know the date and input it in your electronic calendar.
4. Not Considering Your Time Horizons
When you invest outside of a retirement plan, you lose tax incentives. However, consider what you really want reserved for retirement, since there are also tax penalties for withdrawing funds early. Consider other goals such as saving for your kid's college fund, vacations and emergency savings.
5. Investing Money In The Stock Market You'll Need Soon
Let's say you're a month away from buying a home. Your 20% down payment on a $200,000 home, $40,000, is invested in the stock market. Your stock prices drop 20% the day before you write the check. You don't have time for your stocks to recover, so you just lost $8,000. Unless you can afford to lose $8,000, or possibly more, be careful about keeping money you'll need in the next few years in primarily stock-based investments.
The Investing Answer: Stupid mistakes can be avoided by talking to someone you trust before making major decisions. Personal financial advisors and certified public accountants are great resources. But don't forget to talk about money with your friends and family. While they may not know everything, telling each other about financial mistakes can keep someone else from making the same one -- kind of like how I just shared mine.
