Common Investing Mistakes

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Here's a contest you won't want to win. See how many of these common financial mistakes you've made, and discover where to look for solutions.

• Racking up credit card debt. It feels like free money, but it isn't. High interest rates increase your debt and make it harder and harder for you to pay off the balance. That's reverse investing! Learn how to get out of debt by taking a trip to our 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 money in stocks if they won't need it for a while. Kids can learn more with our Teens & Their Money area, while retirees should take a look at the Fool's Rule Your Retirement newsletter.)
  
  
• Investing too conservatively. Any long-term investment is likely to grow most rapidly in stocks. So if you're keeping all of your money in a coffee can in your closet, or even in a low-interest savings account at the bank, reconsider.
  
  
• Diversifying too much or too little. 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 -- generally counted as 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. In other words, don't necessarily turn away from shares of Washington Post, which were recently in the mid-$700s apiece. And don't necessarily drool over Sirius Satellite Radio just because it trades for around $3 per share.
  
  
• 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 -- and you can find a good advisor if you try.
  
  
• 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 mistake, though, if you're reading and thinking about investing here at the Fool and elsewhere!