Investing is a great way to increase your wealth and work towards your lifestyle and financial objectives.
But it’s by no means a smooth process, and many investors can make mistakes that can ultimately be very costly. So, what should you avoid doing in order to make the most of your investments and stay on course to achieve your goals?
Putting all your eggs in one basket
If you limit your investments to one market or industry, you could be particularly vulnerable if it experiences any shocks or volatility. With that in mind, it’s a good idea to diversify your portfolio across a variety of assets and markets, so you’re exposed to less risk and better able to withstand any economic or market difficulties.
Being guided by your feelings
Emotions can run high as you monitor the progress of your investments, particularly if the stocks you’ve invested in start to plummet. It’s easy to be overcome with fear and panic, so you decide to pull out of the market and sell your stocks. But markets go up and down all the time, and they always recover even after the biggest shocks. So if the value of your investments decrease overnight, don’t let yourself be guided by your feelings and emotions. Sit tight, stay calm and stick to your long-term investment plan, and make sure any decisions are based on hard data, not sentiment.
Timing the market
Market fluctuations are a constant companion for investors, and it can be very hard to anticipate which way it will go in the coming days, weeks and months. That’s why it’s a mistake trying to time the market, as you could end up missing out on the chance to earn higher returns and selling at a loss. Again, you should be sticking to your long-term investment strategy and goals, rather than acting impulsively.
Not rebalancing your portfolio
Many investors fail to check their asset allocation and adjust the weightings of different asset classes in their portfolios. However, it’s really important to do this every six months or so, to limit your exposure to certain assets and their share exceeds five per cent of the initial target allocation. By doing this, you can be confident your portfolio reflects the amount of risk you’re happy to be exposed to and aligns with your long-term goals.
Working with the wrong adviser
Getting the right advice is essential if you’re going to be a successful investor, so make sure you turn to a professional, regulated adviser who will act in your best interests.
Not thinking long term
As we’ve stressed throughout this article, you need to adopt a long-term strategy to investing, so it’s important to be willing to give your investments time to grow. With that in mind, don’t tear yourself up by checking market movements on a daily basis. If you plot a graph with daily movements, you’ll end up with a very jagged line. But if you plotted a graph just with the figure from a year ago to today, you’d end up with a straight line, ideally heading upwards. Where you end up is ultimately more important than the route, so there’s nothing to be gained from being too short termist about your investments.
Not setting clear goals
You can only determine whether your investments are successful if you have a clear idea of what you want to achieve. Set defined goals from the outset, so you can measure whether or not you’re on course to reach them.
If you have any questions about managing your investment portfolio, please feel free to get in touch and we’ll be happy to speak with you.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.