- 28th Aug 2015
6 costly investment mistakes…and how to avoid them
Success when investing stems from a mixture of not just doing the right things, but avoiding the wrong things too. Of course, it’s easier said than done, but avoiding mistakes can go a long way towards obtaining the financial future you want.
Below are 6 common traps investors can fall into – make sure you avoid them.
6 common investment mistakes
Starting too late Time is your friend when it comes to investing. The earlier you start investing, the longer you have for your money to grow. Compound interest – the effect of year on year growth – becomes ever more powerful with each additional year you invest. Investing less, but doing it sooner, can quite easily mean you end up with more money overall when compared with investing more at a later date.
Ignoring fees Along with your investment return, the fees you pay along the way will have a huge impact on your final savings pot. Paying an extra percent, for instance, may not seem like much of an issue at the time but the impact over a longer period it can be substantial. Just like compound interest working to help your savings grow, the year on year impact of paying high fees can diminish your savings unnecessarily.
Lack of diversification Investing your money across a number of different asset classes and sectors can help to mitigate your portfolio’s risk. Different asset classes often move in different directions so spreading your money across a number of them can help smooth returns and limit volatility. Without realising it, you can fall into the ‘all your eggs in one basket’ trick and subject your money to more risk than it needs, so it’s always important to consider diversification when setting up or amending your portfolio.
Following the crowd Just because other investors are making certain investment decisions, it doesn’t mean it’s going to be the right thing for you too. It’s always important to base any investment decision on your own personal circumstances and attitude to risk. Everyone is different, so don’t assume what’s right for one person will be right for you too.
Letting your emotions take over Everyone can be prone to letting their emotions take over from time to time. Seeing an investment’s value fluctuate can be a prime time for an emotional decision to come to the forefront. The problem is, it can often lead to doing the exact wrong thing – panic selling when markets drop and buying more when things are going well. At the time it might make sense, but selling low and buying high do not make for a successful combination.
Constant tinkering The need to meddle is within us all. We don’t like to wait. The idea that doing something is better than nothing has been engrained in us from an early age. The problem is, portfolios often perform best when they’re left alone. Investments need time to grow and constantly switching them around doesn’t allow this. It can also mean you’re losing a lot of money in transaction fees too.
So, while not exhaustive, the list will hopefully serve as a good grounding for what not to do. Avoiding these, and perhaps doing the opposite, can go a long way towards you becoming a successful investor.
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Any news and/or views expressed within this article are intended as general information only and should not be viewed as a form of personal recommendation. This article is not directed to, or intended for distribution or use in, any jurisdiction where such distribution would be prohibited. To the extent permitted by law, Wealth Horizon accepts no duty of care or liability for loss occasioned to any person acting or refraining from acting as a result of any material contained within this article. Where past performance is shown, this should not be taken as a guide to future returns. Investment in the stock market is not a suitable place for short term money. The value of investments and associated income may go down as well as up and you may not get back the full amount invested.