Here are three common errors most investors make when stock market investing. All three can seriously hinder your portfolio’s long-term results. (You can get Pat McKeough’s latest lower-risk investing strategies in his new free report, Stock Market Investing Strategy: Pat McKeough’s Conservative Investing Guide for Making Money & Cutting Risk. Click here to download your copy right away.)
- Disregarding subtle signs of high stock market investing risk: These include an unusually high dividend yield or an unusually low p/e (the ratio of a stock’s price to its per-share earnings). High yields and low p/e’s are good, but only within limits.
If a stock’s yield is extraordinarily high, it usually means there is some risk that the company will have to cut or even eliminate its dividend. If the p/e is extraordinarily low, it usually means there is some risk that the company’s earnings are about to fall. Or worse, that the company is using “creative” or deceptive accounting to seem more profitable than it is.
Instead of seeking out the highest yields and lowest p/e’s, look at a wide variety of measures, rather than just one or two financial ratios.
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- Buying structured investments like index-linked GICs: Structured investments are advertised as a way to cut risk. That’s a huge selling point. But it costs money, which comes out of investors’ pockets. Structured investments can spend so much money cutting risk that they produce scant returns, or even losses, after five or even 10 years.
Index-linked GICs provide an example. These investments are marketed as offering all of the advantages of stock-market investing with none of the risk. But the return that holders get depends on an ingenious formula, spelled out in the fine print, which is cleverly designed to sound generous while minimizing the potential payout.
On the whole, structured investments generate below-average returns for investors, if only because of their high fees. It generally pays to stay out of them. - Not giving investments enough time to pay off. Resist the ever-present urge to buy and sell. A sound portfolio, built through careful investing, needs surprisingly few changes over the years, so you have fewer occasions to make costly mistakes.
As a member of TSI Network, you may have already seen Stock Market Investing Strategy: Pat McKeough’s Conservative Investing Guide for Making Money & Cutting Risk. If you haven’t yet read this new free report, click here to download your copy today.
