How Canadians Can Minimize Investing Mistakes

Part of Investing For Canadians For Dummies Cheat Sheet

Making an eye-popping return on an investment is great. You add to your savings, feel better about your finances, and have something to boast about with your friends. But often, you can get a solid pay-off from simply avoiding common investing missteps:

  • Where possible, minimize fees. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. Don’t fall prey to the thinking that “you get what you pay for.”
  • Don’t expect to beat the market. If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing. The large number of full-time, experienced stock market professionals makes it next to impossible for you to choose individual stocks that will consistently beat a relevant market average over an extended time period.
  • Don’t bail when things look bleak. The hardest time, psychologically, to hold onto your investments is when they’re down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don’t sell when there’s a sale going on; if anything, consider buying more.
  • Ignore soothsayers and prognosticators. Predicting the future is nearly impossible. Select and hold good investments for the long term. Don’t try to time when to be in or out of a particular investment.
  • Minimize your trading. The more you trade, the more likely you are to make mistakes. You also get hit with increased transaction costs and higher taxes (for non-retirement account investments).
  • Think long term. Because ownership investments are riskier (more volatile), you must keep a long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them for a minimum of five years, and preferably a decade or longer.
  • Match the time frame to the investment. Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment. For example, for money you expect to use within the next years, focus on safe investments, such as money market funds. Invest your longer-term money mostly in wealth-building investments.