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The Top 5 Components of a Smart Investing System
Do you make these 5 investing mistakes? So many people make one or more of them, which can suck the profits right out of their account. These mistakes aren’t commonly known – but they steal profits just the same.
Even worse, sometimes it seems like the entire investment industry is out to force people to make these mistakes – because the mistakes you make can make a lot of money for brokers and advisors.
The good news is that these mistakes can be avoided with just a bit of effort. Below are the top 5 investment mistakes that you can easily avoid:
#1: “All In”
When someone calls out “All In” during Texas Hold-em, it’s exciting. They could win everything. But what makes it so exciting is the risk of losing it all. Going “All In” can end the game in just a few seconds.
Going “All In” is not something you want to do with your money. It’s too risky. Sadly, 90%+ of investors do go “All In” by placing a majority of their money in the U.S. stock market. This guarantees them a high level of risk and inconsistent profits.
The returns of the U.S. stock market over the last 15 years has been extremely volatile – and most people hate the surprise losses in their account which seem to happen with alarming frequency.
Don’t go “All In” with your account. Invest in other markets like commodities, bonds, and foreign markets.
#2: Lack of Focus
This is the flip side of the “All In” mistake. Having too many investments is almost as bad for your account as going “All In”.
It seems safer to have many different investments, but it’s not really safe at all. An account with too many investments ends up imitating the returns of the stock market, which as we know, can be extremely risky.
Say a person buys a small cap mutual fund, a large cap mutual fund and then a bit of a value fund, plus a little bit of a tech fund thinking they are “diversifying.” It turns out a portfolio like this is almost exactly the same as just buying the S&P 500.
Once a portfolio gets beyond a medium level of diversification, it quickly becomes riskier.
And brokers do not make this easy to figure out since in most cases they make their money per trade, so they actually encourage you to trade more despite the fact that you will probably lose more by doing so.
To beat the market as an investor, you’ll need to be different than the market. It’s a fine line between going “All In” and having too many investments in your portfolio – but you’ll need to walk this line to beat the market.
#3: Having No System in Place
This has got to be the biggest mistake most investors make. Novice investors get lucky a few times and think they have it figured out. The best investors have systems for beating the market – and they follow a pre-set pattern of success over and over again.
Warren Buffet doesn’t just randomly buy stocks. Mr. Buffet follows a system. It’s given him massive success on many stocks over a period of decades. It is not just his skill that made him one of the wealthiest people on the planet.
Mr. Buffet became a multi-billionaire through his investment system, a system built on his skills and insights. The insights are great, but taking advantage of those insights by using a carefully thought out plan is what made him wealthy.
#4: Making Things Too Difficult
This is a less common mistake but extremely frustrating for some people. Some people make their investing too hard to do consistently.
Many people learn enough about the markets and investing to be profitable investors but then make the mistake of making the actual process of investing and trading too hard to do.
What does this mean?
For example, it’s pretty easy to find investment systems which work well.
Momentum Systems work – so do Value and Small Cap investment systems. If you shop a bit you can find them. Trend Following 101 offers a highly successful Momentum Trading System which you can check out by clicking here.
But good Value and Small Cap investing often require a huge time commitment. You’ll need to devote significant time every week – every day – to searching out quality investments.
Any investment system can only work if you are consistent. This means that you must find and make the investments again and again, month after month. That means that you’ll need to do this over a period of years to make real money.
So when you are looking at systems, whether you purchase a system or create your own, it’s not very practical to use a system that will take 20 hours a week to uncover good, profitable investments. After all, the purpose of investing is to make money, to enjoy more of the finer things of life, right? If you are spending all of your time on the investing, you won’t have any time left for anything fun.
Here’s a good rule to follow: Any worthwhile investment system needs to be very easy to do over and over again.
#5: Watch for High fees
Paying high fees is a major account killer. This is undoubtedly the worst mistake. It’s the worst mistake out of this entire list, because high fees make profitable strategies unprofitable.
That’s right – when your fees are too high, profitable strategies become unprofitable.
Even the best investments do not survive high fees. If you fix just one mistake today, fix this one. Make sure you are paying low fees. Look at discount brokers like eTrade, TD Ameritrade, Merrill, and others. Also, trade Exchange Traded Funds (ETFs) instead of Mutual Funds.
I created the Trend Following 101 EZ ETF Momentum System due to a string of conversations I had with friends about their investing. While I have many friends in the financial industry, I am lucky enough to have a bunch of very smart and very successful friends who aren’t professional traders or investors. They have jobs and families, so they don’t have time to actively trade the market. They wanted something that has low risk, low fees, and yet still makes them good money.
But the advice they were getting from their brokers was awful. They were paying huge fees for “diversification” which ended up making them match the returns of the market, and then exposed them to huge risk in the stock market. They were getting the worst of all worlds, and paying a fortune for it.
I figured if they were having this problem, others were too. That’s why I created the EZ ETF Momentum System, to beat these mistakes in the easiest way possible.
A good system will beat these 5 trading mistakes automatically. A good investment system has smart choices built into every step.
- Low fees
- Proper Diversification
- Easy to execute
- Repeatable Success
Fortunately, the EZ ETF system has all of these smart choices built directly into the system from the ground up. That way, when you are investing, you’ll avoid the 5 costly account killers.
Your Friend in the Trend,