Common Investing Mistakes

See how many of these common financial mistakes you have made:

• Racking up credit card debt. It feels like free money, but it isn't. High interest rates increase your debt, making it harder and harder to pay off. That's reverse investing! (Learn how to be smart about credit in our spiffed-up Credit Center.)
  
  
• Not investing soon enough. You're rarely too young or too old to invest. Kids have the most to gain from many decades of stock appreciation. But even retirees can benefit from leaving in stocks whatever money they won't need for five or 10 years. (Learn more in our Teens and Their Money area, and check out our Retirement Center.)
  
  
• Investing too conservatively. Any long-term investment is likely to grow most rapidly in stocks. So if you're keeping all your savings in a coffee can in your closet, or even in a savings account at the bank, reconsider.
  
  
• Over- or under-diversifying. If all your eggs are in two or three baskets, you're exposed to too much risk. If you have too many baskets to count, then you probably aren't able to keep up with each company. Between eight and 15 stocks is a manageable number for most people, although some do well with a few more or less.
  
  
• Focusing inordinately on a stock's price. Contrary to popular opinion, a "cheap" stock isn't a bargain. Penny stocks -- those trading for less than $5 per share -- tend to be risky and dangerous. A $150 stock can actually be a bargain, and if your funds are limited, you can always just buy a few shares.
  
  
• Investing in what you don't understand. The more familiar you are with how companies you invest in work and how well they're performing, the fewer unpleasant surprises you're likely to encounter.
  
  
• Relying on the advice of others. It's great to learn from others, but ultimately you should learn enough to make your own decisions. You're the one who cares the most about your finances. (That said, there is a time and place for a financial advisor for most of us -- learn how to find a good one.)
  
  
• Not tracking your returns. Shrug off this duty at your own peril. You always want your investment returns to be (in the long run) beating a benchmark or market average such as the S&P 500. Otherwise, you might as well just meet the benchmark, perhaps by investing in an index fund.
  
  
• Being impatient. Building great wealth takes time.

Perhaps the worst mistake is never taking the time to learn about investing. You're not making that one, though, if you're reading and thinking about investing here at the Fool and elsewhere!