The top five mistakes to avoid when investing your money. Investing your money is far easier than it was years ago. Today, it is not only an option but a necessity in the world we live in. There are many tools for you to invest your money and to learn how to do it. Nevertheless, investing your money in the wrong way is very simple. Today, Focus Law will tell you the top five errors you should avoid when investing your money.
- Pay high fees
The investments can come with uncertainty, but luckily for us, one of the few aspects we can control are the fees we pay. Unfortunately, the fees we pay highly affect our investment success. High fees are a significant drag on investments performance. For example, let’s say you have two investments that start with $1 million and earn 7% of fees for 20 years. One investment pays 1% in fees, and the other pays 0.5%. After 20 years, the portfolio with the lower fees will have grown over $300,000 more than the one with higher fees.
- Ignore taxes
Taxes tend to be greater than or equal to the total investment management fees. Investors pay high taxes because they are trying to follow the “endowment model.” The “endowment model” of investing that rose to prominence 25 years ago. Foundations, pensions, and individual investors sought to emulate the returns produced by Yale’s Endowment. While foundations and pensions are tax-exempt, most families’ investments are subject to tax.
- Try to time the market.
Market timing is notoriously difficult as it is difficult to predict the highs and lows in the market correctly. Transaction costs are higher than other active investing strategies. Small investors are usually unable to get in and out during the volatility of the market. Also, taxes will be higher on your investment returns. Loads of academic studies confirm that it is impossible to consistently profit from timing the market. If a proven factor or set of characteristics signaled market tops and bottoms, everyone would know about it. Users would use this information to set their prices, destroying the signal of the factor provided.
- Have a short-term focus
In the short term, investment markets tend to be unpredictable and chaotic. Yet, over a long time, the market consistently provides positive returns. It’s hard to engage in good investment behavior if you focus on the short-term. Reacting and trying to understand the constant stream of financial and economic news is a Sisyphean task.
So, avoid these errors while investing your hard-earned money. Money is also supported in your particular business. If this is the case, make sure you work with a business lawyer who knows how to guide you through this journey.
We are an established and growing law firm specializing in business litigation matters for businesses located in California. Call us now for a Strategy Session. We can talk about how to set up your business without worrying about the underlying legal consequences. We can be reached at (714) 415-2007 or reserve your spot by clicking here.