To save you the hassle, I'd like to share some common mistakes with investment brokerage accounts that I found helpful for me. Consequently, I have made 2 of the 3 mistakes here and found out the hard way by paying unnecessary interest and fees, and losing out on a big move in the stock market. As you diligently save money, if there is any way to avoid paying small fees and interest, it's worth looking into.
1. Buying US positions without exchanging CND dollars to US dollars first.
This is one that I did for a few months before realizing what was going on, even though I should have known the whole time. The first stock I bought was Proctor & Gamble without ever thinking about currency. The next few months I incurred an interest charge on all US positions, as my broker borrows the US dollars if you don't exchange. If you're ever buying a foreign currency stock, make sure to do the currency exchange first through your broker. Stop paying interest.
2. Trading too much.
Bouncing in and out of the market and being in large sums of cash at certain times is not a prudent long term strategy. If you miss a quick move in the market, it can be the difference between outperformance and severe under performance. The prudent behaviour is to own great companies and think like an owner in the business; it has its ups and downs but as an owner, you're in it for the long term. To keep up a good trading schedule simply costs you money. For example, you have $5000.00 to trade. You do 4 trades a week. You have to buy and sell each trade so that's 8 buy and sell orders a week. If you pay a $10 commission, this strategy costs over $4000.00 a year to do. Stop trading, and do more real research on finding under appreciated companies. Save money.
3. Buying on Margin
As a new investor, buying on margin should not be an option. The additional interest is not worth paying and even a small margin amount can wipe you out, if the portfolio drops in value. If you are investing in larger sums, I could see margin being used under a strictly adhered to guideline. For example, margin portion cannot exceed 10% of the entire portfolio market value. Either way the ideal situation is to not use margin at all, have a long term plan and diligently stick to it.
Any questions, email me personally. I'm John, my passion in life is teaching about saving, investing and stocks. Glad to answer questions or chat. john@riseofamillionaire.com
John Laframboise is founder and author at http://www.riseofamillionaire.com, a personal finance Blog that follows his progress to become a millionaire. John has held positions within the Canadian banking industry and has a Bachelor of Commerce from the University of Windsor in Canada.