3. Using Too Much Leverage

Leverage has its return and its drawback. The young age of investors is the only time when he/she can add leverage to their portfolios. As discussed earlier, young investors have better ability to recover from the money-losing errors. However, unlike speculation, leverage can also shatter even a good portfolio.

If a young investor is able to handle a 20 percent to 25 percent drop in his/her portfolio without being discourages, then 40 percent to 50 percent drop would result almost two times which would be too much to handle. The penalty result of such a drop will be similar to those resulting from a loss due to speculation. As a consequence, t he young investor may become discouraged and may overly risk averse, that is to accept a bargain with an uncertain payoff rather than another bargain with a more certain which can be possibly lower, for the rest of their investing life.