5 Bad and Good Investing Tips To Think About

When it comes to Trading 101, there are always people out there just yearning to give you an ear-full of advice. And for a beginner, it can feel like every tip is a great tip. However, it’s important to know the difference between great advice that can really help you and your investments, and bad advice that is being passed down simply because people never really reconsidered it. The market changes, and so does basic investing tips. Here are 5 potentially bad tips and 5 good tips that you should think about.

Potentially Bad Tips

1) Don’t Pay Your Mortgage

People giving this advice work with the logic that if you used your money to grow your portfolio rather than pay off your mortgage, you would gain much more wealth and have an easier time paying your mortgage in a shorter timeframe. As attractive as this advice can be, it can also end up with you losing everything during bear markets.

2) Real Estate Is Always Safety

Not true. Land is not always a good investment. This is a myth that has been debunked by several multi-year price declines in the real estate market.

3) Diversify

While many will recommend to diversify to protect yourself during an unexpected market crash, it isn’t a failsafe plan. Diversifying relies on the logic that if your investments are different enough, one side of your portfolio will experience losses while the other side will experience gains. But during a global recession, this is largely untrue.

4) Fix-Rate Annuities Are Terrible Investments

Many complain about the confusing rules and high fees of fixed-rate investments. However, fixed-rate annuities investors usually have the best time during bear markets, experiencing positive returns year-round.

5) Diversification Means Having A Lot of Stocks

Not true. Many people hear the word “diversification” and think it just means buying a lot of shares in different companies. But if all your stocks are in the tech industry, a tech market crash could lose you everything. Diversification means having stocks in a variety of markets.

Evergreen Great Tips

1) Prepare A Cash Cushion

This advice can never go wrong. Make sure you always have an emergency fund for a rainy day. If the market comes crashing down, you don’t want to be out on the streets begging for coins.

2) It Can’t Rise To Infinity

When a market has been in the green for months or years, more and more are willing to jump on board and pump more value into it. But remember: if you are one of the latecomers, you could be coming on right before the end of the ride. No investment can keep rising forever.

3) Spend Less Than You Make

The stock market can make many people rich, and with that sudden rush of money, you may start adopting unsustainable spending habits. Spending beyond your means with money that was earned from a lucky investment can drive you into the ground, as soon as the investment turns around.

4) There Will Always Be Risk

Some hesitate from jumping into the investment game because they don’t feel that they have the gut for risk. But here’s the truth: there will always be risk. No matter where you put your money—on Wall Street or with a friend’s new business—you can always lose every dollar you put into it. Don’t consider it your money until it is back with you.

5) Use Common Sense

If a market sounds too good to be true, then it’s not true. If it is true, then make sure you do all the required research and know all the facts; don’t invest in a market that you don’t understand.