Looking to get started investing? Good for you! Here are three rookie mistakes -- and how to avoid them.
Paying for advice you don't need.
Fortunately, this classic blunder is easy to avoid: Just don't use full-service brokers, a group of financial pros whose interests, alas, are all too often not aligned with yours. Instead, consider investing in the market via a discount broker and conducting your own research using resources like the whip-smart Motley Fool community to vet prospective investments before taking the plunge.
And if you do opt to "go pro," make sure it's with a fee-only advisor. Your odds of getting unbiased financial advice increase exponentially when you're footing the bill as opposed to, say, a fund company whose sales charges keep the advisor's lights on and send his or her kids to college.
Getting loadedThose sales charges, by the way, are known as loads, and investing in funds that charge them is another pothole to avoid. Indeed, as the Fool's resident fund geek, I've yet to encounter a load fund so strong that an even better no-load alternative couldn't be found.
The upshot? If you like the peace of mind and convenience that, theoretically anyway, come with professional financial advice -- and if you're not inclined to do much sifting through the investment universe yourself -- consider index funds. Don't get me wrong: Actively managed market-beaters can indeed be found. And it's true that, with "passive" picks, the best you can legitimately expect is to trail the indexes they track by about the amount of your expenses.
That said, roughly three out of four active funds fail to keep pace with the S&P 500, so newbie investors can increase their odds of success by plunking down their hard-earned money in, say, a fund like Vanguard 500 Index (FUND:VFINX), a dirt cheap market-tracker that makes investing in the likes of Microsoft (NASDAQ:MSFT), Sprint Nextel (NYSE:S), and Sun Microsystems (NASDAQ:SUNW) as easy as proverbial pie.
Same goes for iShares Russell 2000 Index, a small-cap focused exchange-traded fund (ETF) that provides convenient and inexpensive access to such smaller fish as Acuity Brands (NYSE:AYI), AmylinPharmaceuticals (NASDAQ:AMLN), and Level 3 Communications (NASDAQ:LVLT).
Falling in love
Don't get me wrong: As a happily married man, I'm a big proponent of the L word. It can lead, after all, to impossibly adorable two-year-old daughters (just ask me!) and a lifetime of domestic bliss (right, hon? Hon?).
With stocks, however, it's a whole different story.
Indeed, if you let a stock's "story" -- and therefore your emotions -- cloud your judgment when pulling the trigger on a buy order, you're making a sucker's bet. If you want to go the individual equity route, getting out your green eye shades (you have a set, right?) and crunching the numbers isn't optional -- it's required.
Don't get me wrong (again!): When it comes to investing, I'm all about demystification, and I don't mean to suggest that putting your money to work in a Foolishly intelligent way is tantamount to rocket science, brain surgery, or [fill in your favorite impossibly complicated task here].
I do think, however, that even good companies can make lousy investments, and that over the course of your investing career, you'll benefit greatly from: a) doing the math; and b) sticking to a winning strategy.
The Foolish bottom lineAs it happens, the issue of Motley Fool GreenLight that we're currently prepping will help out on both those fronts. It'll come complete with an overview of the investing strategies that Fool newsletter advisors use at their services. It will also feature a clutch of investment ideas that you can put to work right away.
If that sounds right for you, I encourage you to give GreenLight a try: Financial kick starts are what we're all about. Click here to try the newsletter -- along with our feature-rich companion website, members-only discussion boards, and advisor blogs -- free for 30 days. I can't promise it'll improve your love life, of course, but I'm confident it will help you get your financial life in gear.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service and co-advises Motley Fool GreenLightwith his pal -- and fellow Ben Kweller fan -- Dayana Yochim. Shannon doesn't own any of the securities mentioned. Microsoft is a Motley Fool Inside Value pick. You can check out the Fool's strict disclosure policy by clicking righthere.
