It's been a great year for investors who stayed in the market, and stayed disciplined. The S&P 500 is up more than 25% on the year, and the Dow Jones Industrial Average has gained 21%.
But making money isn't just about finding stocks/investments that will increase in price. It also involves avoiding the common investing mistakes that prevent retail investors from enjoying record-high markets.
To make sure you aren't making any of those money-losing mistakes, here's a list of the four worst investing strategies we see happening today.
Four Common Investing Mistakes Made Today
Investing Mistake #1: Not Investing at All: The financial crisis has caused millions of Americans to lose confidence in the markets. Today, only 50% of middle-class Americans own stocks or bonds. That is down from 66% in 2008.
Instead, some people have all their money sitting in savings accounts right now. The bank pays them a whopping 0.2% to store their money, while the bank leverages it elsewhere in its own house account.
It's easy to grow fearful of another major market event. But the markets have stormed back since 2009, rising more than 100% - and those are gains you can't get any of unless you invest.
There are always safe companies with strong fundamentals that can absorb market shock. There are international equities that provide safe returns at lower risks. It's just a matter of knowing the types of companies to invest in.
Our Chief Investment Strategist Keith Fitz-Gerald recommends investing some of your money in companies he calls "Glocals." These are companies that are both local to the United States and have an international presence, helping you capture growth from the international markets, even during problems at home.
Investing Mistake #2: Not Using Trailing Stops: If you own stocks or equities, there is little reason for you not to use trailing stops. Without them, you can lose your profits - and your principal.
Trailing stops are a stop-loss order that investors can set according to the price of their stock as it increases or decreases. The stop is set at a percentage lower than the current price. They are important because in times of volatility, an investor is able to sell his or her position automatically to protect both gains and principal.
For example, if you purchase a stock at $100 and we set a 25% stop on it, the sell order would trigger at $75.
Trailing stops protect your gains so well because as share prices rise, so do the stop losses. Over time, the goal is to protect the profits you gain after owning the equity for a longer period of time.
But by protecting yourself on the downside, you can prevent losses from becoming catastrophic. Otherwise, you'll be chasing the stock to earn back your profits when you could reallocate your capital to a better opportunity and potential return.
Investing Mistake #3: Having a "Paycheck Mentality" When You Invest: A lot of investors seem to believe that owning stock is like earning a paycheck. Each week, they buy and sell stocks (paying outlandish broker fees) to attempt to capture small gains earned from short-term price movements.
Sure, there are times to engage in short-term plays with options and other vehicles when something is mispriced (that's exactly what our Strike Force service does).
But for most investors, that isn't a long-term plan. When it comes to your portfolio, and, especially your retirement, buying and selling at a fever pitch is the wrong approach.
Famed investor Jim Rogers once told me that investors need to treat their investment decisions as if they only had 15 trades to make... in their entire lives. That requires patience and diligence with each decision. This also this means that it's important to remain calm, utilize strategies like trailing stops to resist selling urges, and let your money do the work for you over time.
Investing Mistake #4: Lacking an Investment Strategy or Not Sticking to One: You wouldn't build a house without a blueprint, would you?
Because, if you would, I wouldn't want to live in that house.
The same goes with investing. You need to stick to a regimen. There are many different strategies out there that might fit your risk tolerance, asset levels, and general knowledge.
We call ours the "50-40-10" allocation model. Money Map Report readers know it well. It forms the basis of our Money Map Method.
You see, traditional diversification strategies are completely wrong. They are based on the allocation of capital with no regard for risk. As a result, they are frequently and often completely out of line with financial conditions, which can change month by month, or even hour by hour.
Consider a classic 60/40 portfolio of stocks and bonds, for example. For years that was okay because people simply split their capital into chunks between the two asset classes, not realizing that the 60% in stocks translated into 90% of the risk being carried by their equities.
The 50-40-10 portfolio is focused on a group of core economic realities - equities, interest-rate instruments, income production, commodities, and systemic credit. This focus makes the overall portfolio less susceptible to economic downturns because the risk is much more evenly distributed. Furthermore, because The Money Map Method requires that we constantly rebalance our risk, we can easily shift with varying market phases - growth, contraction, inflation, and even sentiment-driven events - all without placing significant portions of our capital at risk.
For more on The Money Map Method, here's an excerpt from Fitz-Gerald's book: "The Secret to Superior Returns"
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.