A Wealth of Common Sense: The 4 Types of Investment Mistakes

Investors hope to buy an asset such as a stock or option, and see it increase in value. That’s the fundamental building block of investing. Over time, more tools can be employed to increase the complexity and smooth out returns.

Along the way, there are just four mistakes that investors can make. Knowing what they are can help identify a potential weakness. Or point to a strategy change for better returns.

For instance, most investors know that it’s a mistake to hold onto a losing position for too long. Most investors see a loss, then decide to sell once a position goes back to its breakeven price. That likely means holding a position for further losses. And not freeing up capital to put into a winning trade instead.

Another mistake investors can make is to not rebalance their portfolio. Having a runaway winner in a single stock can create a concentration risk in a portfolio. Taking some profits along the way still leaves some on the table for further gains. But it also frees up capital for the next big potential winner.

Likewise, investors may sell a winning position too early. One ideal strategy is to wait until a position has doubled, then sell half of that position. That avoids selling too soon, while also ensuring a rebalancing occurs.

To see the last mistake that can impact your portfolio’s returns, click here.