The average person wants to find ways for their hard earned money to work for them, to build their retirement savings, to build up their savings account, to have a profitable investment portfolio and in many cases, they have the best intentions, but it boils down to knowing the facts. Knowing exactly how, what, when, where and why you should restructure, prepare, and grow your finances.
There are do’s and don’ts to a healthy and wealthy lifestyle and by repeatedly committing one or several common mistakes, individual investors often prove to be their own worst enemy. It doesn’t matter if you are a seasoned or novice investor, there are some common mistakes that you should watch out for.
- Avoid - Thinking Investing is only for the Rich
Even the rich started somewhere. A person that is able to put away $650 per month (this amount is after all the monthly expenses are paid) could attain a portfolio or nest egg that would yield half a million dollars in 4.8 years, when correctly invested and managed. The key is to obtain the financial know-how needed to reach your financial goals, objectives or results and begin setting aside money to reach those goals sooner. For so many people, time is a valuable commodity wasted without an efficient plan or the required knowledge on how to achieve your end result.
- Avoid - Investing without an Investment [Time-tested] Strategy
Many students that come to The Q Institute have haphazardly gone “out there” trying to make investments. They have often been intrigued by the latest stock tip or latest real estate tip and if you don’t have a plan to follow, you end up taking these tips and blowing your financial brains out. We see it happening all the time, people come to us to correct the problems they “fell” into - the cost of correcting a problem compared to avoiding it from the onset is so much more valuable. Trying too many things [investments untested] at once without the proper plan to guide them causes an ill-result.
Part of the solution is to first take a deep look at your financial past, present and future to determine your investment thinking, your investment knowledge base, your investment habits and your personal philosophy around finances. This deep introspection will give you many clues as to how you arrived to where you are (financially speaking) and how to make the required change or the necessary correction without costing your life savings in the process of learning from the school of hard knocks, a costly school to attend to say the least. In essence, be proactive - proactive - proactive.
Your current financial situation also determines where within the Four Stages of Wealth you currently are (a fundamental building block in all of The Q education programs): Acquisition, Diversification, Asset or Capital Preservation and Asset Transference or Succession. Following these stages one after the other, not rushing ahead too quickly and instead making sure you have the knowledge of each stage before moving on to the next, makes obtaining wealth a natural, successful process.
- Avoid - Diversifying your Investment Portfolio Too Soon
Many investors diversify too soon their investments in their quest to become financially independent. People have been told, “don’t put all your eggs in one basket” and most people without the knowledge or training have taken this statement as their living financial mantra. It is vital during the first stage of the Four Stages of Wealth, Acquisition, that investment strategies you are employing have a chance to work or mature into a predictable return before moving to Diversification. Avoid putting investment capital into so many different and varied investment vehicles. This will ensure that the capital at work has time to “bite” into creating a return. The invested capital has a chance to mature, to produce results such as financial stability which will lead to financial control, leading to financial knowledge, leading to financial independence.
- Avoid - Thinking that Your Investment Portfolio Cannot be Run Like a Business
Many people treat investing as a part-time activity and do not pay close enough attention to it, often times giving up control of their money to some money manager, investment advisor or banker.
Take all your investment activities and approach the “idea” of investing as a business and you will find that you are going to gain the knowledge of the correct strategies which will produce the most effective decisions as far as your investment capital is concerned. Your investments would be set inside of the correct legal structure, providing you with the most effective tax benefits, reducing tax liabilities, improving the performance of investments you might undertake.
If you were to consider your investment portfolio as a business, you would set yourself up corporately (the correct entity is key) and as such you would immediately be able to take advantage of many different tax benefits, as an example; any time you spend on educating yourself would be considered a legitimate legal expense and perfectly deductible, the cost of setting up the correct entity would also fall under the category of an expense and therefore is deductible. Any trip you would take as part of your investment strategy would also (when the trip is positioned correctly) be an expense worthy of deduction.
As the investments within your corporation start to produce a yield, these yields are returned or captured inside the corporation; as you now devise the correct and tax efficient strategies to effectively make use of those returns for your lifestyle needs.
As an example, listed below from the worst types of investment returns to capture (within the entity) to the most tax efficient you want your investment portfolio to produce:
- Interest Income (the very worst)
- Dividend Income
- Capital Gains
- Gross Profits
The bottom line is, people that treat investments like a part-time activity find the results are only realized part of the time.