You Could Lose or Make a Fortune
We advise avoiding these dangerous investing mistakes and get on your best path to financial freedom.
Let’s get straight to the point. We don't want to see any of our members making dangerous investing mistakes like these:
- Don't buy fewer than 10 stocks.
- Don't aim for short-term gains.
- Don't invest all your savings in stocks.
- Don't borrow money to buy stocks.
- Don't buy stocks because they're under $5.
- Don't expect all of your stocks to go up.
- Don't use options in your first year of investing.
Here's why -- and what we think investors like you should do instead.
How these investing traps can destroy your dreams
- If you buy fewer than 10 stocks, you may not be diversified enough. A portfolio with just a few stocks could be extremely volatile. And investors like you risk missing out on potentially the biggest winners that have driven our history of outperformance.
- If you focus on short-term prices, there’s risk in overreacting to the noise and selling potential winners way too early -- sometimes at a loss! Don’t invest in short-term stock prices. Invest in the long-term success of businesses.
- Investing only in stocks could force investors to sell off investments at the worst possible time -- when the market is down! That’s a terrible scenario.
- Borrowing money to invest in stocks puts investors in a very fragile position. Then they’re at the whim of lenders who can force them to sell at massive losses. We've seen investors borrow money and accelerate gains in the short term, only to get wiped out entirely when the market declines. Bad idea!
- Don’t let losing stocks scare you away from investing for the long term. Every investor has stocks that go down. Historically investors earn great returns if you’re right just six or seven out of every 10 stock investments.
- Don’t be inclined to buy penny stocks, no matter how exciting they seem. Stock market regulators have warned repeatedly that "penny stocks" trading at $5 per share or less can be extremely dangerous. These tiny companies are highly speculative and often end up worthless.
- Using options strategies before building a solid foundation of stock knowledge can put your entire portfolio at risk by focusing on short-term returns rather than long-term success.
What we think investors should do instead
- Buy 15 or more Motley Fool recommendations
Buying 10 stocks is the absolute minimum and as you join The Motley Fool's premium services like Stock Advisor or Rule Breakers, we will help you build more than 15 stocks. The more stocks you own and the longer you hold them, the more likely you will make money as an investor.
- Plan to hold those stocks for 3-5 years or more
The shorter an investor’s time horizon, the more we think it is like flipping a coin with your stocks. The longer investors hold, the less random their outcomes will be.
- Add new savings to the portfolio regularly
Having cash available means being ready to invest without needing to sell another stock. And market declines become opportunities to buy at discounted prices!
- Be prepared for stock market declines -- and pounce on them
You have to expect 10% drops from the entire market about once a year on average, with 20% declines every four or five years. Even bigger crashes of 30% to 40% come at roughly 10-year intervals. We think investors have to stick with great companies through tough times to maximize your long-term returns. It’s even better if they’re able to add money to their winners along the way.
- Target excellent returns over a 10- to 25-year period
Investing is a long-term game. And it’s a game we’re confident you can win; we’re here to help.
We believe when investors buy at least 15 stocks and focus on holding those stocks for 5-10 years at least, they set themselves up for financial freedom and put the odds of winning in their favor. Let great companies succeed for investors like you. Try to make money by sitting.
You've got this!
Investing involves taking some risk, but investors can control most of those risks just by avoiding the dangerous mistakes too many investors make. Follow these Foolish principles instead, and we think investors like you will be on your way to financial success.
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