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Investing pitfalls to avoid – how to come out on top

| May 14, 2015 | Investing, Retirement Planning

This article originally appeared as a column for the Cleveland Jewish News.

So much investing advice is out there. Read 10 different articles and you will find 10 different opinions on how to achieve investing success. What’s a new investor to do? Whom do you look to? How do you know which advice to follow? How do you best invest your money to meet your goals? As you get started, here are some of the primary pitfalls to avoid:

• Don’t fail to identify your goals. The first step toward successful investing is to identify your goals. Maybe you want to save for retirement. Or maybe you want to save for your children’s higher education. Perhaps you want to save up for a new home, grow your wealth, or some combination of all of these. Whatever your reason or reasons for investing, the point is that you want to clearly identify them.

Your goals will drive your personal definition of a wise investment, and only once you have identified your investment goals can you select the best investment options to meet your needs. By failing to do this, you could inadvertently stifle you money’s growth by missing out on the tax advantages associated with tax-deferred accounts such as 529 (college savings) plans or certain IRAs, 401(k), 403(b), or other retirement accounts. Or you might opt for investments that are too risky to satisfactorily protect and grow your money, or too risk-adverse to stand a chance of bringing the returns you are searching for.

So first, figure out what you want to accomplish through investing, and then research your options to determine the best way to achieve those goals.

• Don’t look for “get rich quick” schemes. Unless you are a very experienced investor (if you are, you are probably not reading this article) you are not going to make millions of dollars from your investment overnight. Do not try it and do not expect it. This is a recipe for failure. If someone is promising you these sorts of returns, run the other way as quickly as you can. This person is almost certainly scamming you. Instead, understand that wealth grows over time, exponentially, and the longer you can give your money to grow the better your results.

• Don’t put all your eggs in one basket. Diversify your investment portfolio. That is not to say that you need several different accounts (although you may, if each account is serving a different purpose.) However, within your account you will want to make sure you have a diverse portfolio of investments. A good, diversified portfolio will not include one or two stocks. Most likely it will not even contain only stocks. Instead, it will more likely include a good balance of investments such as stocks, bonds, index funds and mutual funds. The logic behind diversification is that even if one investment tanks, the others will perform better and prevent catastrophic losses.

Investing is, of course, not an exact science. You will not find a step-by-step how-to that will guarantee results. Financial advisers, stockbrokers and portfolio managers build entire careers out of choosing good, solid performing investments and even they get it wrong. But, with these basic tips and a lot of research, you can soon learn to make sound investments that will grow your wealth over time and help you meet your financial goals.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.