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Don't Make These Three Money Mistakes -- Not Again

The last nine weeks have been awesome for stock investors, with the markets up 37 percent from their March 9 low. Even my mother used the term "green shoots" yesterday; and dopey magazines and investment companies are touting the "best place to put your money!"

Before you do anything, though -- stop. Because it's remarkably easy to fall into three common money mistakes --- again.

1) Buying because the stock market is up: you couldn't open your 401(k) statement in early March, but now you're thinking of taking the plunge because the last price on the board is higher. In other words, you could be buying high, only to sell low if the market drops and you freak out again. Before you jump back in, ask yourself:

  • Should I be buying stock?
  • Has my risk profile or time horizon changed?
  • If you're sitting on a pile of cash, ask yourself, What's my plan for rotating back into the stock market? Will I dollar cost average a specific amount of money or percentage of my portfolio each month?
2) Ignoring your financial life because the economy is improving: "If the economy is getting better than maybe I don't have to save so much." In a word, no. The lesson of the past two years is that for too long, Americans relied on the expanding economy and rising asset values to do the heavy lifting for them. The lesson is to be self-reliant and don't expect the market's recovery to save your retirement.

3) Buying industry hype. Today's great fund is usually tomorrow's loser. After laying low and ducking your calls for six months, big firms and fund companies are back, hyping the stuff that did well (or less bad) last year or last quarter. Remember that Jumping around chasing returns, "safety," or a "special opportunity" to enter a fund that was closed, rarely pays off.

Use this market pop to educate yourself and stop thinking that there is some magic man behind the curtain who knows what's going to happen next... and once and for all, take control of your financial life.

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