One of the surest ways to get turned off from investing is to bet on a loser. If you have described your logic for investing in a particular company using one of the following phrases, back away from the "buy" button:
'It's cheap'
Considering a stock with a price that slumped recently? Review its price chart from the past year or longer. If the line has gone down for several months, you are betting against the masses. Such investments can turn profitable — just look to the financial crisis for hundreds of examples — but you should understand why the price has fallen, because it could easily go even lower.
'I got a hot tip.'
Skepticism is useful when receiving market advice. This is true even when your stock tips come from a trusted financial adviser. Consider whether the person has something to gain from you buying or whether he or she has the expertise to offer the advice at all. And remember that tips can be criminal if they are based on information that's not public.
'I love the company's product.'
You might know a company well from a consumer's perspective, but other factors affect its stock price — such as analyst recommendations, investors' perceptions of its value and its popularity among exchange-traded funds. Don't let brand loyalties overpower your quest for a well-diversified investment portfolio.
'I'll at least make a quick buck.'
Many people set out with shorter investing horizons in mind, intending to actively trade stocks. If that's you, make sure you are fully aware of the risks, and be prepared to pay higher capital-gains taxes and trading costs. If not, leave the stresses of short-term market swings to the professionals, and don't let the market's recent surges convince you that the good times will never end.
'I want to invest in something.'
Piling money into a single stock because you are eager to play the game could be disastrous. There is a reason so many investors stick with broad index funds: It helps reduce risk. Building a well-diversified portfolio takes time and planning. But you will be thankful for exposure to other assets, such as bonds, when the stock market takes a hit.
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