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BUSINESS NEWS - In this article, we would like to point out some key areas where common investing mistakes are listed, according to a recent article by Robert Stammers, Director of Investor Education at the Chartered Financial Analyst Institute.

Top mistakes to avoid as an investor:

Having unrealistic expectations or relying on someone else's expectations

Having reasonable expectations helps investors keep a long-term view without reacting emotionally. 

Long-term investing is about creating a well-diversified portfolio providing appropriate levels of risk and return in a variety of market conditions. Even so, no one can predict or control what rate of return the market will provide, and it is important that your expectations are realistic. 

What return you will need and what you can expect, requires a good understanding about your risk appetite, goals and your asset allocation, and the relationship between these.

Not having clear investment goals

Often investors focus on chasing short-term investment returns instead of designing an investment portfolio that has a high probability of achieving their long-term investment objectives.

Not diversifying enough

Diversifying prevents a single stock from drastically impacting the value of your portfolio. Both too much as well as too little diversification can affect performance. The best course of action is to find a balance and obtain advice from a professional.

Paying too much in fees

Fees can meaningfully impact your overall investment performance, especially over the long run.

Focusing too much on taxes

While using capital gains tax exemptions can be useful, you should not decide to buy and sell a security solely based on its tax consequences.

Not reviewing your portfolio regularly

It is important to review your portfolio frequently as asset classes will perform differently over time. Review your investments regularly to make sure you’re staying on track or if your portfolio needs to be rebalanced.

Misunderstanding risk

Some level of risk is needed when investing. Too much risk can take you out of your comfort zone, but too little risk may result in lower returns that do not reach your financial goals. 

Recognise the right balance for you both financially and personally and consider your emotional ability with your risk exposure.

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Not knowing how your portfolio has performed

Often, investors do not know the performance of their investments. Your returns should be reviewed, taking fees and inflation into account, and making sure you are meeting your investment goals.

Trying to time the market

Market timing is extremely difficult. Staying in the market can generate much higher returns than trying to time the market perfectly.  

As an example: According to Stammers, an investor in the S&P 500 Index who was not invested in the market during the top 10 trading days between 1993 and 2013, would have achieved 5.4% annualised return instead of 9.2% by staying invested.

Making investment decisions based on emotions

Although it can be challenging, remember to stay rational during market fluctuations. There are so many questions that go along with financial plans and goal setting which your adviser will be able to navigate you to find the perfect plan and goal for you.

According to Visual Capitalist, investors’ annual average loss in returns due to emotionally driven investment decisions is 3%.

Our team uses a holistic approach to assess a client’s needs and goals and develop a financial plan suited to their needs. We specialise in investment and financial planning.

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