Over the past few months, we’ve periodically looked at common mistakes most investors make, and given you our investment advice on how to avoid them. Here are 3 more common errors all investors make from time to time.
Losing patience. Good chess players never “go for broke,” as the saying goes. Instead, they try to position their pieces so they can profit from the mistakes they expect from opponents who are less talented, less experienced or less patient. Successful investors follow a comparable approach. But the crucial difference is that they have no opponents who can be relied upon to make mistakes. Instead, successful investors try to arrange their portfolios so that they more-or-less automatically tap into the profit and long-term growth that inevitably comes to well-established companies operating in relatively free and stable economies.
Relying on brokers’ stock-price targets. Investors sometimes ask us why we don’t publish price targets in the investment advice we publish in our investment services and newsletters, including Canadian Wealth Advisor, our newsletter for conservative investing. We don’t publish targets in our investment advice for several reasons. The main one is that they may lead investors to rely too heavily on predictions, which are the least reliable part of the investment decision-making process.
Big bets on predictions or opinions will always produce inconsistent results. That’s why successful investors recognize that predictions are of limited use in investing profitably. Targets do tend to push up your stock market trading activity and commission expense, because they give you a rationale for selling whenever a stock you own hits its target. This helps explain the popularity of targets in brokerage research.
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Failing to be skeptical with insurance products. These days, the insurance industry seems to be working overtime to design and sell financial products to income investors who are desperate for better returns than those available on savings accounts, GICs, bonds and other fixed-return investments. Our investment advice is that you should approach these and all insurance products with a healthy sense of skepticism. Each insurance company imposes its own unique rules, exceptions and so on. This, needless to say, complicates comparison shopping. But when it’s hard to comparison shop, that’s the time when it’s essential to read the fine print.
First, though, you need to make a cold-blooded assessment of whether a particular insurance product suits your needs, even assuming it lives up to the impression you get from the marketing materials.
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