Whether investing money to the tune of $1000, $10,000 or much more, there are basic investing mistakes that most beginners make. These mistakes can be very costly, so let’s look at investing $10,000 and how beginners can do things right.
When investing money, beginners must realize that there is no such thing as a perfect investment. You can’t have it all in any one single investment. If you are investing $10,000 you must have your own personal financial objectives in mind. What are your priorities from this list: high liquidity, safety, growth, higher income, tax advantages? Be honest with yourself and your financial planner if you have one. Investing money is all about tradeoffs, and what level of risk you are willing to accept.
Of all the investing mistakes beginners make, not knowing and sticking with your financial objectives is the worst. If you are investing $10,000, do you need instant access to your money (high liquidity) in case you have a financial emergency? If so you need a safe investment like a money market fund; and you give up growth, higher income and tax advantages. Otherwise you could be faced with fees and penalties, or market losses if you need to cash in at the wrong time. For example, you don’t want to be forced to liquidate a $10,000 stock investment that’s fallen to $5000 just to make your mortgage payments.
Once you have your objectives in mind get a handle on the investment options that fit your needs before you start investing money. For example, if you are working for a living and investing for retirement, you need at tax break and should consider an IRA or your 401k plan at work if you have access to one. If you are investing $10,000 a year you might want to put half in such a plan and the other half someplace you can get to it without penalties. Lack of liquidity one of the most common investing mistakes beginners make.
Avoid excessive costs and fees. Investing money in stock funds and bond funds to get growth and income not need cost you an arm and a leg. Investing $10,000 in the wrong mutual funds could cost you $500 off the top when you invest and as much as $200 or more EACH YEAR for expenses and other fees. This is one of those investing mistakes beginners make that can be costly over time. For example, people invest in bonds to earn higher income, and over the long term bonds and bond funds have returned about 6% a year. You can’t afford to give a third or half of that back in charges and fees. Go with no-load index funds. There are no sales charges to invest, and investing $10,000 can cost less than $50 a year, period. Miki Agrawal
Investing money successfully need not be a part time job, but it does require a little ongoing effort on the investor’s part. Ignoring the status of their investments is a common investing mistake beginners and many other investors make. Look at your quarterly statements when you get them. Are there charges and fees you don’t understand… are you losing money? You can not correct a problem if you don’t know it exists.
You can avoid the common investing mistakes beginners make and put yourself in a better financial position. Know your financial objectives and get a handle on your investment options. Keep your cost of investing low and stay on top of your investments. Once you have cash reserves set aside for liquidity, you can start investing money one step ahead of the crowd.