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7 pieces of investing advice that sound smart but could hurt your wallet

The article titled "Useless Investing Advice" from AOL Finance, written by Dan Burrows, delves into the common pitfalls and misconceptions that investors often encounter. The piece is a critical examination of the kind of advice that, while well-intentioned, can lead investors astray and potentially harm their financial health. The article is structured around several key points, each highlighting a piece of advice that is considered useless or even harmful.

The first piece of advice critiqued is the notion that one should "buy low and sell high." While this sounds like a fundamental principle of investing, Burrows argues that it is far easier said than done. The challenge lies in accurately identifying what constitutes a "low" price and a "high" price. Market timing, which is the practice of trying to buy at the bottom and sell at the top, is notoriously difficult and often leads to poor investment decisions. Instead of trying to time the market, Burrows suggests that investors should focus on long-term strategies and diversification.

Another piece of advice that Burrows deems useless is the recommendation to "invest in what you know." This advice, popularized by Warren Buffett, suggests that investors should stick to industries and companies they are familiar with. However, Burrows argues that this approach can lead to a lack of diversification and potentially missed opportunities in other sectors. He points out that while it's important to understand the businesses you invest in, limiting oneself to familiar industries can result in a portfolio that is too concentrated and vulnerable to sector-specific risks.

The article also takes aim at the advice to "follow the herd." Many investors fall into the trap of buying stocks that are popular or trending, often driven by media hype or social media buzz. Burrows warns that following the herd can lead to buying at the peak of a bubble and suffering significant losses when the bubble bursts. He emphasizes the importance of independent thinking and thorough research, rather than simply following the crowd.

Another piece of advice that Burrows criticizes is the suggestion to "chase high yields." Investors are often tempted by stocks or bonds that offer high dividend yields or interest rates. However, Burrows points out that high yields can be a red flag, indicating that the company or bond issuer is in financial distress. He advises investors to look beyond the yield and consider the overall health and sustainability of the investment.

The article also addresses the advice to "avoid all risk." While it's natural to want to protect one's investments, Burrows argues that trying to avoid all risk is a futile endeavor. All investments carry some level of risk, and attempting to eliminate risk entirely can lead to missed opportunities and suboptimal returns. Instead, he suggests that investors should focus on managing risk through diversification and a well-thought-out investment strategy.

Burrows also critiques the advice to "invest in penny stocks." Penny stocks are often touted as a way for small investors to get rich quickly. However, he warns that penny stocks are highly speculative and often lack the liquidity and transparency of larger, more established companies. He advises investors to steer clear of penny stocks and focus on more stable, long-term investments.

Another piece of advice that Burrows considers useless is the recommendation to "day trade for a living." Day trading, the practice of buying and selling stocks within the same day, is often glamorized as a way to make quick profits. However, Burrows points out that day trading is extremely risky and requires a level of skill and dedication that most investors do not possess. He advises against day trading as a primary investment strategy and suggests that investors focus on longer-term, more sustainable approaches.

The article also addresses the advice to "invest in gold as a safe haven." While gold is often seen as a safe investment during times of economic uncertainty, Burrows argues that it is not a foolproof strategy. Gold prices can be volatile, and investing heavily in gold can lead to missed opportunities in other asset classes. He suggests that investors should consider gold as part of a diversified portfolio, rather than relying on it as a sole safe haven.

Burrows also critiques the advice to "buy on margin." Buying on margin, or using borrowed money to invest, can amplify gains but also magnify losses. He warns that margin investing is risky and can lead to significant financial losses if the market moves against the investor. He advises investors to avoid margin investing unless they fully understand the risks and have a solid plan in place.

The article also addresses the advice to "invest in IPOs." Initial public offerings (IPOs) are often seen as a way to get in on the ground floor of a promising company. However, Burrows points out that IPOs can be risky, as they often come with high valuations and limited historical data. He advises investors to approach IPOs with caution and to thoroughly research the company before investing.

Finally, Burrows critiques the advice to "trust your gut." While intuition can play a role in investing, he argues that it should not be the sole basis for investment decisions. He emphasizes the importance of data, research, and a well-thought-out strategy, rather than relying on gut feelings.

In conclusion, the article "Useless Investing Advice" by Dan Burrows serves as a cautionary tale for investors, highlighting the dangers of following common but misguided pieces of advice. By debunking these myths and offering more practical, evidence-based suggestions, Burrows aims to help investors make more informed and successful investment decisions. The article underscores the importance of a long-term perspective, diversification, and thorough research in building a robust investment portfolio.

Read the Full AOL Article at:
[ https://www.aol.com/finance/useless-investing-advice-160153475.html ]