How to Avoid Losing Money on Bad Investments

Bad investment strategies not only lead to devastating losses of income, they can cause stress, feelings of failure and excessive worry and regret. Become educated about financial planning and learn the basics of how to avoid losing money on bad investments before giving your money away.

Steps

1. Set financial goals. Finding out how much money you want, and when you expect to get it, is the first step in financial planning and deciding on investment strategies.
   
2. Decide how much risk you can afford to take. Most of the opportunities that can make the most money are also risky; it's possible to lose all if not most of the investment and to have to worry regularly about how the investment is performing. If you are a nervous person, high risk investments may not be a good choice for you. It's also wise to only put a portion of your money in high risk investments. You'll get a possible higher return while keeping some financial security.
   
3. Understand the vehicle you want to invest in. Do some research on your own, instead of just following trends or taking advice. Read up on the general financial position, the history and possible growth of the company or product you are investing in.
   
4. Become educated about financial planning and investing. Get to know the buzzwords and read financial news and books. A mentor or investment coach can help make investment strategies and fundamentals easier to understand and teach you how to avoid losing money on bad investments.
   
5. Use sound judgment, not emotion, when working on investment strategies. Just because you like a company or product or are a loyal customer does not make it a good investment. Similarly, investing in a new idea or product that sounds good to you may not be a good idea unless it has a solid business plan and compares realistically to the industry it is in.
   
6. Commit to long term growth. Once you've done your homework on an investment and are sure that it is a wise investment strategy, prepare to leave your money in it for a reasonable amount of time. Avoid trying to time the market or buy and sell. Sound investments will generally level off after losses.
   
7. Maximize tax advantages and free contributions. Putting the bulk of your money in IRAs and other tax exempt investments will save money compared to taxable investments. If your company matches your contributions to a 401K, increase your savings amount for more long term gain. At the same time, don't borrow against funds like this since you'll take a huge penalty.
   
8. Be realistic, not overconfident or overly optimistic. Make a solid plan to earn money and save money instead of relying on investments or financial windfalls.
   
9. Keep some of your money in liquid investments. Don't put all your money in investments that involve high maintenance or conditional fees or that are difficult to liquidate. Save some of your financial windfall in accounts that you can tap without penalty if you have an emergency.
   
10. Diversify your investment portfolio. Don't invest all your money in one annuity, stock or tax deferred account. It's safe to have all your money within 1 reputable financial adviser or mutual fund company, as long as they diversify it within their portfolio.
    

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