The 5 Mistakes Every Investor Makes and How to Avoid Them, 2nd Edition

MISTAKE #6No Mistaking

Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.

—Miles Kington

When it comes to investing, much of the game is simply not messing things up. We have covered that in detail thus far. Of course, the goal is not only to avoid getting in the way of success; it is to maximize the odds of success.

Having gone over the key mistakes to avoid, we can move on to discuss how to optimize your results.

Rule #1: Have a Clearly Defined Plan

If you don't know where you are going, you'll end up someplace else.

—Yogi Berra

You don't start a race without knowing where the finish line is. You don't go on a hike without knowing your destination and the conditions you may encounter. You don't start driving somewhere without knowing where you are going.¹ Nonetheless, most investors invest without an endgame laid out in advance. Without a destination, it is easy to drift off course. Without a plan, it is easy to change the strategy midstream, increasing the odds of messing everything up.

Before you invest one dollar, you must have a plan. A plan does not need to be a 150-page road map of how you will invest every minute for the rest of your life. A plan can be very straightforward.

Step 1—Begin with determining the starting line, which is where you are today. Build a net worth statement that lays out all of your assets and liabilities.

Step 2—Know your goal. A goal must be very specific and realistic. An example of a goal that would ...