We’ve seen our share of investor mistakes in our experience — it’s natural that an investor makes mistakes but doesn’t go on to repeat them. Yes, the markets change, circumstances change, but if an investor can learn from those bad decisions, they can become a better investor.
With some experience and some education, a good investor can become a great investor and avoid the common pitfalls and traps that they could easily find themselves in. So, let’s talk about some of the biggest mistakes investors make and how to avoid them.
Mistake #1: Not understanding the investor’s needs.
In my experience, one of the most common mistakes investors can make is to not properly match the investment strategy to their goals and expectations which should be one of the first things an investor thinks about. But this is often not the case.
Investors should ask the right questions from the start. Questions such as:
What kind of risk am I prepared to take?
What proportion of the investments should be in stocks, bonds, properties, and other assets?
For how long do I wish to invest?
How long can the funds be invested?
Am I retiring soon? Do I need to finance my living costs from the investments?
These are just a few of the questions a savvy investor should be asking.
Mistake #2: Lack of diversification of risk.
There is a reason smart investors choose to seek the advice of proven experts, but more often than not, I’ve seen seemingly smart investors skip this fundamental practice.
Our advice is simple: Don’t put all your eggs in one basket!
Diversification across different types of assets reduces the risks and yields better results in the long term. Too many investors see a ‘good thing’ and don’t properly diversify the portfolio, but this is a mistake.
Mistake #3: Trying to time the market just right.
The third mistake investors make is a simple one, but I see it quite often. No one can accurately predict the stock market’s future performance, no matter how ‘savvy’ or ‘smart’ you think you are.
What to do instead?
Invest in shares gradually over time when the market dips, but never buy a share all at once. Remember to consider risk. Again, I urge you to remember mistake #2, even if you feel that you have a ‘hunch.’
Mistake #4: Selling in bad times.
This is one of the worst and most damaging mistakes around, yet I see it all the time. My advice — even if an investment is down — is please do not panic! This is a paper loss only. Keep quality blue chip shares and hold them long term. Investing is thinker’s game. Avoid emotional decisions and play the long game.
Mistake #5: Avoid becoming a gambler.
Too many investors cross the line into gambling and this is a big mistake. My recommendations are simple:
Do not buy penny or speculative shares.
Stick to top quality and global companies.
Avoid following the crowd and avoid investing in low-value or speculative investments that have not been proven in the market, such as crypto-currencies.
Conduct a periodical review of your portfolio and ask for professional, independent advice.
Mistake #6: Investing first, then reaching out for advice.
Often, someone will make an investment based on emotion. We’ve seen it all here. Too often, someone will get excited about a stock (even a well-known, or top quality one) and invest all of their money into that one stock.
Weeks or months will go by and we’ll get the phone call. “Help! Should I sell? Should I have invested in this stock?”
My advice is simple. Before you invest, reach out. We can help you avoid costly mistakes and make smarter, more confident decisions.
It’s important to re-balance the investments at regular intervals as well, but only a proven investor knows when and how to do this.
Mistake #7: Not understanding the investments before you purchase.
It is essential that the investor research and understand the investment before buying it. Making this mistake could cost you (which is where an expert can also help).
If you don’t understand the investment structure, you might end up:
Paying too many fees, such as bank charges and brokerage and investment management fees.
Paying hidden costs. You’ll need to review the current fee structure of your bank and investment manager first to avoid hidden or surprising costs that might occur.
Another good practice is to compare the current fee structure of your investments with other service providers (not just your own), such as other banks and investment advisors.
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