Building wealth is not easy. Make the right decisions and it can be done. The rich make good decisions more than they make bad decisions, but they are not perfect. Unless money is inherited, becoming wealthy is about hard work and researching how to make your money work for you. I contend it is not about having a big salary. Over and over, the rich become poor due to bad decisions. Those with a modest salary can build a significant nest egg if they have discipline and knowledge. CNBC found out the top 5 investing mistakes of millionaires.
1. Failure to diversify. Don't put all of your eggs in one basket. Do this through investing in mutual funds or if you have individual stocks, do not have more than 20% of your investments in one sector. Don't have all tech stocks, or all bank stocks for example.
2. Investing without a plan. Have a plan for your portfolio. Think about your risk tolerance, investing timeline and your goals. Are your investments going toward retirement or are you planning on selling once you make a profit?
3. Making emotional decisions. It's easy to fall into certain investing trends or fads, but the successful investor will adjust the portfolio based on research, not emotions.
4. Failing to review the portfolio on a regular basis. Make a plan to review your investments every so often. If you are investing for the long term, as most do, then reviewing it often is not as important since you can afford to ride out the ups and downs. A short term investor will want to watch the portfolio more closely. A 5% loss can turn into a 25% loss quickly.
5. Focusing too much on the historical returns of investments. The past matters a certain amount, but future performance is what really matters. One cannot invest in past gains, only future gains.
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