Here are 7 mistakes to avoid as a person works hard to accumulate wealth, there are others of course but these stand out the most, so pay attention to them as I suggest.
#7 Overextending yourself.
If a person gets overextended they can be stuck in a bad deal which can bring a large unwanted amount of stress into their life and force them to sell a good investment to get some money to stay financially solvent.
The most important first step of any investment is to analyze the pros and cons of the deal first, particularly what is the worst case scenario? There will always be a stock that presents as undervalued somewhere, like there will always be a desperate seller with a rental property that seems perfect at first glance.
Likewise there will usually be a business owner who is looking for a quick sale or maybe even finance a person to take over his business.
One needs to be patient and get sound financial advice before they leap.
If they are seeking a deal in the marketplace, they will eventually find one.
It's much better to pass on a deal than get stuck in a bad contract one cannot get out of.
#6 Not backing out of a deal so you will not upset somebody else.
On rare occasion a person went through with a real estate deal mainly because they felt they had imposed on the agent or loan person via too much time spent to back out near the end of the deal.
These erred transactions cost money and placed the person in a bad financial bind, what for?...
so they didn't upset a person or the agent, whose primary interest was only to earn a commission and get out the door to the next deal.
That was a large mistake and people do it everyday with cars, real estate, stocks, and small deals like home remodels.
This situation can be a tough one, but its best to stay focused on what is best for you, after all it is your money at risk.
A friend discussed how she had to back out of a real estate transaction on the very last day to close it.
She had to back out because the terms of the loan changed considerably.
Unfortunately the escrow agent, loan officer, her real estate agent, seller, and everyone in the deal were angry, but she was compelled to protect her money and her best interests.
#5 Investing on impulse.
Someone can lose money if they buy a stock just because a finance letter writer or talking head on NBC suggests a stock to buy and the buyer fails to do their research on it first.
People who want to invest should get in the habit of first researching the investment (day trading included).
They should expend some serious hours researching a subject or day trades and spend more time, weeks perhaps, checking the pros and cons before they make a substantial investment.
#4 Buying the dip.
A great strategy for accumulation is to buy a stock when it's down as this idea works on the concept because an investment is down that it is now practically guaranteed to bounce back up in value.
Those who used this strategy to buy tech stocks in the 2000's or financials in 2008 found out it was a disaster.
When one knows for sure that a stock is mispriced by the market, then buy only if you know for certain.
Apple (AAPL) was a perfect example in early 2013.
On June 28, 2013, AAPL closed at $391.
36, AAPL is now trading for over $500, in less than 2 months that delivered a 28% gain.
However, we know persons who purchased shares of AAPL at $610, or $515, and in the middle $450's just because it had dropped down from $700.
Just because a stock has fallen is not a reason to buy it, it is much more important to exercise patience and buy for the right reason and at the right time than to buy an investment just because it has come down in price.
#3 Lazy diversification.
For an unknown reason quite a few persons think the term diversification should apply mainly to just cash one has invested in the stock market, but that's not correct.
Diversification should apply to your whole investment portfolio.
True and safe diversification is not just owning multiple stocks in various sectors or some mutual funds.
Diversification needs to be a unique and strategic plan for cash flow and future capital appreciation.
Real Diversification Gold/Silver as insurance - 10% Commodities Stocks (mostly large cap) Real estate rental properties Businesses Notes Stock Options Speculative Investments - 5% Retirement Investments (IRA, Whole Life Insurance, & Trust Deeds) When one diversifies they should consider their total net worth, not only those stocks in their brokerage account.
People need to place 90% of their investments in as safe as possible opportunities they find that will also produce cash flow.
That is the big key to successful investing.
#2 Giving money to people who claim to be rich.
This is a huge one and needs to be emphasized.
Two kinds of people stand out here.
Your broker will be the first one as the amazing fact is that most brokers are actually broke themselves.
When someone wants to manage your money for you just ask them to see their tax return for the last year! This is a very serious business, never forget you are actually their employer, so looking at their tax return should be standard operating procedure.
If someone isn't substantially wealthier than you, why would you give them control of your investment capital? The second person is just as dangerous to your financial health.
This would be some strange person who randomly calls you up.
They proceed to connect you (on the phone) to another allegedly important person you don't know who then tries to brainwash you to invest in their supposedly fantastic deal that winds up with you sending them some of your money with no guarantee of its return.
My friend Joe has been pitched numerous times by family or friends trying to convince him to invest in a new cell phone company, new oil well venture, or other opportunity that is supposedly ready to earn millions any week now.
He has told all of them to not call him with anymore fantastic offers.
Sometimes they'll go so far as to allege they have some wealthy investor or expert involved in the deal...
which should make one question, if these persons are so smart and rich then why do they need to ask for $25k from me? Why don't they keep the good deal for themselves? My college friend was asked for $100k back when he was in his early 20's.
The guy presenting the deal alleged to be in partnership with an oil tycoon supposedly worth 40 million dollars.
My friend said he laughed so hard because you shouldn't have to call 20 year old youngsters to request $100k from them when you have $40 million yourself.
These types of allegedly hot deals should be avoided at all cost.
The few people known to this author who ever invested in a hot deal like this lost their money and are poorer for it.
This also stands for 95% of the multi-level marketing (MLM's) deals one runs into as well.
#1 Turning every investment into a speculative bet.
If you truly desire to get wealthy, this is a huge concept every person must work to overcome.
Too many people ask my investment counselor friend for price targets on specific stocks, which is an erroneous way to look at investing.
If you own a rental property, stock, or cash flowing business, it does not matter as much how much it might potentially be worth.
Your focus should be primarily on the cash flow, not the capital appreciation.
The capital appreciation should be a secondary consideration.
When one stays focused on quality investments that produce great cash flow, then capital appreciation will automatically increase over time.
Any investments that are speculative such as micro-cap companies should only make up 10% of your investment portfolio in most investment counselors' opinion.
It's best to garner guaranteed returns or be safer with reliable returns in the other investments you choose.
Most successful investment counselors agree this strategy works best to get a person financially free over a period of time.
#7 Overextending yourself.
If a person gets overextended they can be stuck in a bad deal which can bring a large unwanted amount of stress into their life and force them to sell a good investment to get some money to stay financially solvent.
The most important first step of any investment is to analyze the pros and cons of the deal first, particularly what is the worst case scenario? There will always be a stock that presents as undervalued somewhere, like there will always be a desperate seller with a rental property that seems perfect at first glance.
Likewise there will usually be a business owner who is looking for a quick sale or maybe even finance a person to take over his business.
One needs to be patient and get sound financial advice before they leap.
If they are seeking a deal in the marketplace, they will eventually find one.
It's much better to pass on a deal than get stuck in a bad contract one cannot get out of.
#6 Not backing out of a deal so you will not upset somebody else.
On rare occasion a person went through with a real estate deal mainly because they felt they had imposed on the agent or loan person via too much time spent to back out near the end of the deal.
These erred transactions cost money and placed the person in a bad financial bind, what for?...
so they didn't upset a person or the agent, whose primary interest was only to earn a commission and get out the door to the next deal.
That was a large mistake and people do it everyday with cars, real estate, stocks, and small deals like home remodels.
This situation can be a tough one, but its best to stay focused on what is best for you, after all it is your money at risk.
A friend discussed how she had to back out of a real estate transaction on the very last day to close it.
She had to back out because the terms of the loan changed considerably.
Unfortunately the escrow agent, loan officer, her real estate agent, seller, and everyone in the deal were angry, but she was compelled to protect her money and her best interests.
#5 Investing on impulse.
Someone can lose money if they buy a stock just because a finance letter writer or talking head on NBC suggests a stock to buy and the buyer fails to do their research on it first.
People who want to invest should get in the habit of first researching the investment (day trading included).
They should expend some serious hours researching a subject or day trades and spend more time, weeks perhaps, checking the pros and cons before they make a substantial investment.
#4 Buying the dip.
A great strategy for accumulation is to buy a stock when it's down as this idea works on the concept because an investment is down that it is now practically guaranteed to bounce back up in value.
Those who used this strategy to buy tech stocks in the 2000's or financials in 2008 found out it was a disaster.
When one knows for sure that a stock is mispriced by the market, then buy only if you know for certain.
Apple (AAPL) was a perfect example in early 2013.
On June 28, 2013, AAPL closed at $391.
36, AAPL is now trading for over $500, in less than 2 months that delivered a 28% gain.
However, we know persons who purchased shares of AAPL at $610, or $515, and in the middle $450's just because it had dropped down from $700.
Just because a stock has fallen is not a reason to buy it, it is much more important to exercise patience and buy for the right reason and at the right time than to buy an investment just because it has come down in price.
#3 Lazy diversification.
For an unknown reason quite a few persons think the term diversification should apply mainly to just cash one has invested in the stock market, but that's not correct.
Diversification should apply to your whole investment portfolio.
True and safe diversification is not just owning multiple stocks in various sectors or some mutual funds.
Diversification needs to be a unique and strategic plan for cash flow and future capital appreciation.
Real Diversification Gold/Silver as insurance - 10% Commodities Stocks (mostly large cap) Real estate rental properties Businesses Notes Stock Options Speculative Investments - 5% Retirement Investments (IRA, Whole Life Insurance, & Trust Deeds) When one diversifies they should consider their total net worth, not only those stocks in their brokerage account.
People need to place 90% of their investments in as safe as possible opportunities they find that will also produce cash flow.
That is the big key to successful investing.
#2 Giving money to people who claim to be rich.
This is a huge one and needs to be emphasized.
Two kinds of people stand out here.
Your broker will be the first one as the amazing fact is that most brokers are actually broke themselves.
When someone wants to manage your money for you just ask them to see their tax return for the last year! This is a very serious business, never forget you are actually their employer, so looking at their tax return should be standard operating procedure.
If someone isn't substantially wealthier than you, why would you give them control of your investment capital? The second person is just as dangerous to your financial health.
This would be some strange person who randomly calls you up.
They proceed to connect you (on the phone) to another allegedly important person you don't know who then tries to brainwash you to invest in their supposedly fantastic deal that winds up with you sending them some of your money with no guarantee of its return.
My friend Joe has been pitched numerous times by family or friends trying to convince him to invest in a new cell phone company, new oil well venture, or other opportunity that is supposedly ready to earn millions any week now.
He has told all of them to not call him with anymore fantastic offers.
Sometimes they'll go so far as to allege they have some wealthy investor or expert involved in the deal...
which should make one question, if these persons are so smart and rich then why do they need to ask for $25k from me? Why don't they keep the good deal for themselves? My college friend was asked for $100k back when he was in his early 20's.
The guy presenting the deal alleged to be in partnership with an oil tycoon supposedly worth 40 million dollars.
My friend said he laughed so hard because you shouldn't have to call 20 year old youngsters to request $100k from them when you have $40 million yourself.
These types of allegedly hot deals should be avoided at all cost.
The few people known to this author who ever invested in a hot deal like this lost their money and are poorer for it.
This also stands for 95% of the multi-level marketing (MLM's) deals one runs into as well.
#1 Turning every investment into a speculative bet.
If you truly desire to get wealthy, this is a huge concept every person must work to overcome.
Too many people ask my investment counselor friend for price targets on specific stocks, which is an erroneous way to look at investing.
If you own a rental property, stock, or cash flowing business, it does not matter as much how much it might potentially be worth.
Your focus should be primarily on the cash flow, not the capital appreciation.
The capital appreciation should be a secondary consideration.
When one stays focused on quality investments that produce great cash flow, then capital appreciation will automatically increase over time.
Any investments that are speculative such as micro-cap companies should only make up 10% of your investment portfolio in most investment counselors' opinion.
It's best to garner guaranteed returns or be safer with reliable returns in the other investments you choose.
Most successful investment counselors agree this strategy works best to get a person financially free over a period of time.