10 Mistakes Every Investor Makes and How to Avoid Them HTML version

10 Mistakes Every Investor Makes & How to Avoid Them
Mistake #5 – Taking Too Much Risk
Losing money is the only thing keeping investors from creating
wealth. Sounds obvious, but many investors don’t pay attention to
this mistake. As Warren Buffet so eloquently put, “The first rule of
investing is don’t lose money. The second rule is don’t forget rule
number one.”
When you lose money, it takes twice as much money just to get back
to break even. For example, if an equity loses 50% in value it will
require a 100% increase just to get back to break even.
When you take substantial risks, it’s not unusual for your asset to
decrease 50% in value, but gaining 100% is far more unusual. While
the dividends and earnings from your winning stocks can be
reinvested in order to take advantage of compound interest, your
losers also compound and quickly eat away any gains you achieve in
other investments.
No one is immune to losing money, but when investors put
themselves in too much danger of losing money, those losses
compound. But all investors seek to make money, which is why they
take some risk. In order to accumulate great wealth, it is necessary
to protect the downside by investing in what appears to be as close
to a sure thing as possible.
Bottom line, Investors should stick to their rules and not stray from
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