In the Seinfeld episode “The Stock Tip,” Jerry and George decide to try to play the stock market – and it goes as well as you might expect for the two. As is so often the case in the world of Seinfeld, a good idea is undone by one simple yet petty mistake after another. While that formula proved to be comedy gold for the best sitcom of the 90s, losing your money due to investment mistakes is no laughing matter.
As such, let’s take a look at some of the most common investing mistakes and how you can avoid them.
Focusing Too Heavily on Rates of Return
It can be quite easy to fixate on rates of return when considering investments, to the detriment and exclusion of everything else. However, this is a mistake. Too often, investors go for opportunities with big chances for gains, ignoring whether or not those gains are sustainable. When investing, consistent gains are almost always better opportunities than rates of return with huge peaks and valleys.
Not Focusing Enough on Diversification
When it comes to investing, it can be far too easy to fixate on the fees you pay. After all, you don’t want to wind up paying more than an investment opportunity is worth. Investing in a given stock or investment opportunity is only a valuable or viable option insofar as it can net you a profit.
That said, while fees matter, so too does investment portfolio diversification. The more investment opportunities you have going for you at a given time, the greater your chances of having one or more of them turn out to be a winner. Conversely, even if the fees are low, putting all your eggs in one basket is quite limiting at best and can prove disastrous at worst if that financial opportunity dries up or goes bust.
Tax Deferrals versus Tax Savings
These two things are not one and the same. A tax deferral merely defers the period at which you are taxed, rather than granting you outright savings. Be sure that you’re clear on which option a given investment opportunity provides.
Keep these tips in mind, and prevent your next investment from becoming a Seinfeldian comedy of errors.