It’s a lot easier to make mistakes when investing in individual shares of stock. Here are some common boneheaded errors:
Investing in individual stocks at all
Unless you really know what you’re doing and can stomach tying your future to the fate of a few individual companies, choose mutual funds instead. You get the chance for great returns with much less risk.
Buying low-priced stocks
Stocks priced under $10 are cheap for a reason. Many investing professionals won’t touch them, so why would you? Owning 10 shares of a loser at $5 is not better than owning one share of a winner at $50.
Having no exit strategy
Investors spend a lot of effort researching a stock to buy, yet many have no plan for selling it. Maybe you sell when it reaches a price target. Or maybe you hold it until something dramatic happens to company management, its products or its industry. Have a plan.
Loading up on company stock in your retirement plan
Your greatest asset, your income, already comes from this company. Don’t sink most of your investments–no more than 10 percent, tops–in the company, too, no matter how confident you are in its future. Ask Enron employees how well that works.
———-
Gregory Karp is a personal finance writer for The Morning Call, Allentown, Pa., a Tribune Co. newspaper. E-mail him at yourmoney@tribune.com
