The biggest investment mistakes Canadians are making

Many Canadians are falling short of their investing goals. According to a February 2012 Bank of Montreal survey, only 38 percent of Canadians contributed or planned to contribute to their Registered Retirement Savings Plans (RRSPs) before the Feb. 29 deadline.

Whether you're investing in an RRSP, stocks or mutual funds, bad planning and missteps can stunt the growth of your nest egg. Kanwal Sarai, founder of the educational company Simply Investing and creator of the online self-paced Simply Investing course, has some tips for avoiding the common investment pitfalls.

1. Flitting from one investment to another
Just because the economy is volatile doesn't mean your investment strategy should be. Sarai says that, when the stock market goes down, people often panic, call their mutual fund companies and withdraw their money.investment-mistakes

All these fits and starts can cost investors in the form of fees, according to Sarai. Most mutual funds charge fees, including initial registration fees for opening an account, front-end load fees for buying funds and back-end load fees for selling funds. So, each time investors buy and sell, they incur costs.

"You are making the mutual fund company rich, not yourself," Sarai says.

2. Putting all your faith in a financial adviser
The investment landscape can be confusing, which can prompt many to turn to financial advisers for help. But while an adviser can serve as an excellent source of information, remember to conduct your own research, and don't be afraid to ask for a second opinion.

"No one cares more about your money than you do," says Sarai. "A financial adviser is motivated by the commissions he or she will receive. A mutual fund company is motivated first and foremost by profits."

Moreover, relying on a financial adviser often prevents consumers from learning to invest by themselves.

 "Investment education is so important and so very easy to learn," Sarai says. "But most Canadians spend more time researching which TV, iPad, gadget, BBQ or car to buy than they do with how to invest safely and responsibly."

3. Investing emotionally
Nothing can trigger an emotional meltdown like watching your investment funds diminish when the stock market is having a bad day. But instead of jumping ship, ride out the storm and resist the urge to panic and sell.

"Emotions can definitely wreak havoc on your investments," says Sarai. "[People] panic when markets go down, and get greedy when markets are up. This emotional response causes people to buy high, and sell low, which is exactly the wrong time to buy and sell."

4. Concentrating on the short term
In this era of immediate gratification, it's easy to overlook long-term investment strategies. However, Sarai warns that Canadians "really need the patience to ride out market downturns and to invest for the long term."

Market downturns happen every few years and they may last several years, Sarai says.

In the short term, the market is volatile, but, in the long term it tends to provide great returns. The only way to profit from those great returns, however, is to have enough discipline to keep your money invested in the same place.

"You need the discipline to stick to one strategy and avoid chasing the latest investment fads," Sarai says. "Remember, you incur costs each time you sell and buy investments."

5. Forming bad credit card habits
What does racking up credit card debt have to do with investing wisely? Plenty, according to Sarai.

"Bad credit card habits will negatively impact your investments," he warns. "Essentially, bad credit card habits lead to more debt, and more debt leads to no money left over for investing."

See related: Study: Ignore your financial adviser and keep things simple; How to change your money-wasting-habits

Published March 9, 2012

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