Over the years I have provided advice to all sorts of people in all sorts of investment markets. The easy part is choosing an investment strategy, the hard part is ensuring you stick to it and not making mistakes such as selling out after a market fall or hanging onto fallen investments in the hope they’ll one day recover.
Here are some of the most important investment mistakes to avoid:
1. Not accepting or learning from your investment mistakes
We have all made mistakes when it comes to investing. These may have been buying a unit off the plan on the Gold Coast or taking a tip from the taxi driver from Saturday night however, jumping from one poor investment to a new one without looking at what went wrong can lead to you making the same mistakes over and over again.
Before moving onto the next investment take some time to think about what went wrong. If you can’t work out what went wrong then it is a sure sign you should never have invested in the first place.
Try writing down the reasons for your investments as these can form a good point of reference for future decisions.
2. Getting emotionally involved in your investments
Even for the best investors admitting you are wrong and crystallising a loss is one of the hardest things to do. It is after all human nature to not admit our mistakes and to hang on in the hope things will recover.
This is why it is important to try and leave your emotions out of investment decision making. As soon as your original reason for making an investment is compromised or fails to come to fruition it is time to cut your losses and move on.
Most of us find this almost impossible and, if this sounds like you, use a professional advisor who will be impartial, unemotional and should make investment decisions based on your personal circumstances.
3. Don’t overreact to negative news
There is information about investment markets and economies available almost everywhere from all sorts of sources. Remember most of these sources of news have a job to create headlines and sell papers. Headlines such as ‘billions wiped off the value of our markets’ are created to cause reaction even though a billion dollars is probably less than a 1% fall.
Don’t be tempted to react to such headlines without first discussing this with your advisor or, at least, taking the time to think through what impact the news might have on your overall position.
Don’t watch your portfolio on a daily basis and remember the markets are volatile and they will move from day to day. Try and tune out of the hype and only listen to those you trust or read information from reliable sources.
4. Don’t invest in companies you know nothing about
Remember a share is not just a price but a part ownership in a business. Don’t buy shares without first knowing the name of the company, what it does, how it operates and how profitable it is. Do your research and get advice!
5. Invest in accordance with your stage of life
So often we see retirees with all of their money in shares and young people invested in cash. Being too aggressive close to retirement may cause unwelcome volatility and a lower income than is required. As a young investor with too much in cash you may miss out on growth over time.
It is important you structure your portfolio with your needs and stage of life in mind. Get professional advice and ensure your portfolio is appropriate for the amount of risk you are willing to take and the stage of life you are at. If you are nearing retirement sell down some of your riskier assets.
Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of NKH Knight Holdings (AFSL 438 631) ABN 30 163 152 967. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.
