Here are two major cautions to look out for:
1. Beware of Stock-Picking Experts
I really like the website Stockchase.com, as it summarizes expert opinions on hundreds of different stocks, and you can quickly glance to see if the general consensus for a company is to 'Buy', 'Sell', or 'Hold'. One of the experts' favorite stocks for the longest time, consistently sitting on their 'Top 10 Portfolio' was Crescent Point Energy (CPG). They loved the company's excellent management and its unfaltering monthly dividend. It was the crown jewel of the Canadian energy stocks- a must have and they were all shouting 'Top Pick', and 'Buy'.
Fast forward to this morning- where the top financial headline read: "Energy stocks pummelled as U.S. oil prices drop to a new low."
When oil prices tumbled (and as a direct result so did Crescent Point's stock price), oddly enough the experts' tone changed. The comments now read: "I was always wary of this stock, I never believed the dividend to be sustainable," and "This stock is a challenge, I've been bearish on the energy sector for years." So let's see, the same folks who were shouting at the top of their lungs to invest in this company a few years ago are now claiming that it's not a good buy and it never has been! This is a great example of the dangers of the stock market clairvoyant - no one can predict the future 100% of the time, especially with commodities like oil, gas or gold where hundreds of independent factors play into their value.
2. Self-Interest Recommendations
I'm talking about banks that push great deals or amazing mutual funds that supposedly consistently beat the market. Remember, a managed mutual fund means there's a broker sitting in an office taking 2-3% of your money to stick it in a bunch of stocks he or she deems better than the rest. Not only does this obliterate your profits, statistics have shown that these investments consistently under-perform the market! So be aware of too-good-to-be-true returns, check the fine print, or better yet, buy passively-managed mutual funds with lower manager fees, or Exchange Traded Funds (ETF's).
So remember, take investing advice with a grain of salt, and if someone is making it sound complicated to try and impress you and make you think they know their stuff, be cautious - investing your money should be simple and easy to understand and not intimidating and confusing. A true expert keeps it simple.