It's just the way we are wired as humans. We want to avoid failure and loss, but our natural reactions can short-circuit our investing plans. If you want a better chance to grow your wealth over the long-term, then stopping these three investing mistakes will help.
1) Having too much personal debt
If you are striving to make 10% – 15% share returns, but you have a lot of personal loans and credit card debt with sky-high 20%+ interest rates, then your repayments will most likely eat up your gains.
Before we can invest, we need to be able to save and that means tackling debt. The thousand dollars you save now could become many thousands over 20 or 30 years with smart investing.
2) Being impatient with stocks
Knowing why you bought a stock is half the battle in knowing when to sell or keep it. Even with a good stock pick, your expectation of a quick rise comes from the need for self-gratification. When it doesn't happen, or, gasp, the stock falls, investors can get antsy.
The real gains come from long-term compounding of returns. You could be right about the stock, yet wrong about the timing. That's why it pays to have clear goals for the stock and if they aren't met, then you cut them according to your plan.
3) Growing your weeds and cutting your flowers
Peter Lynch, the author of One Up on Wall Street, created this phrase, which means we hold onto our losing stocks too long and we sell off our winners well before they really can bloom with profits. If you have a stock that is down and it definitely should be jettisoned, you are tempted to keep it just in case it rebounds, but mostly to avoid taking the loss. Oppositely, one stock shows a little gain and could produce much more, yet you want to cash in your chips now and move on.
Get rid of the weeds that hurt your portfolio returns and let the flowers grow to their full ripeness.
Another tip for better investing is sticking with quality stocks for the long term. Here are two blue-chip stocks that could be part of the bedrock base for your future wealth and retirement.
— Westpac Banking Corp (ASX: WBC)
It offers the second highest dividend yield (5.2% fully franked) of the Big Four banks and has the best dividend growth rate over the past 10 years. The banks are all high in share price now, so valuations are stretched, but over the coming years buying opportunities can open up for accumulation.
— Insurance Australia Group Limited (ASX: IAG)
The company is well known for such brands as NRMA Insurance, CGU and SGIO. It will be buying the insurance business of Wesfarmers Ltd (ASX: WES), adding to what is already the largest market share for general insurance. It currently has a tremendous 6.1% yield fully franked, and a steady track record for dividend growth.
