I am sharing with you what I consider to be the biggest investment mistakes that people make time and time again. It’s easy to look back with hindsight about some of these mistakes and say – Well that was pretty obvious.
Even so, this salutary tale may help you avoid the same mistakes that many have made before you.
Should you be investing if you have credit card debt?
Yes, that’s a pretty bad idea, but people do, do it.
Let’s say you invest £10,000 in shares, you’ll have to fees, not to mention that you will have to make a hefty profit. You’ll have to make a return of around 2.5% a month just to reach the point where you’d break even if you sold. That’s assuming that credit card debt could be up to 30% APR.
But let’s suppose you have a loan costing you only 5% per year in interest. You need to be confident of making a return from your investment of more than that just to break even. With the FTSE 100 averaging something around 6% per year long-term, that’s not really worth the risk.
And if you’re expensive debt, which could be costing you up to 30% in interest, you have absolutely no chance.
Should you invest short-term cash?
If you have some short-term money available, should you invest it?
Yes, that’s a pretty bad idea as well.
If you intend to use the money for something else in the short to medium term, investing your money is a bad idea, even though you are probably earning little or no interest. At least your money is safe for when I need it.
Short-term ups and downs with the market could make a big difference to the value and you don’t want to be on the wrong end market movements when you need the money.
Investing in equities is better than leaving your money in cash, but not over the short-term.
Should you try to time the market?
Shall I try and time the market to make money? Bad idea number 3.
There is no shortage of people who will tell you that they can time the market and teach you how to make a fortune in no time at all. The reality is that they are little more than “SNAKE OIL” salesmen.
The market timers, will tell you that they have cracked the code, uncovered the secret of making money by timing the market. They may be able to get it right a few times, but in the end, they will come unstuck. The history of equity investing is littered with unfulfilled promises and huge amounts of money lost to the market.
Even if it seems obvious, the markets can behave in the most unpredictable ways. The biggest mistake is believing or convincing ourselves that the market is either at the top or at the bottom and making an investment decision based on that opinion.
What should you do instead?
Whilst there are no absolute rules on how to make money investing, there are a few simple rules to follow to avoid falling into a trap, as many have done before you. Follow these rules and you will reduce the risks and enhance your chances of making your money work well for you.
The rules to follow are these.
- Always pay off expensive debt before investing. Get yourself debt free perhaps with the exception of your mortgage before investing.
- Keep short term cash as just that. If you have money earmarked for being used in the short medium term, unfortunately you will have to accept that you will earn little or no interest.
- Don’t get caught my trying to time the market or follow share tips from the man down the pub. The chances of disappointment are high.
- Invest with medium to long term money and remember that values go up and down on a daily basis. And always remember the reasons you invested for in the first place.
- Stay in the game long enough and you massively increase your chances of making a healthy profit.
- Always hold quality investments that you keep under regular review.
- Get rid of poor performing investments sooner rather than later. Losers can have a dramatic affect on the performance of your portfolio.
- Diversify your investment portfolio to spread the risk.
Are you concerned about your how your investment portfolio is performing? Not sure if you are on the right track?
Contact us to today. We can review your current situation and let you know what options are available to you.
If you would like to talk to about financial planning, please get in touch for a no-obligation meeting. Go to our website www.miadvice.co.uk and contact us via our “Get in touch” form on our home page or Contact Martin Dodd on 01902 742221.
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It is advisable to take advice from a professional financial adviser when making major financial planning decisions.
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This article has been prepared in good faith and based on Midlands Investment Agency’s understanding of the law and interpretation thereof at the time of creation. The contents should not be regarded as specific advice and we always recommend that specific advice is sort from a qualified professional. No responsibility can be accepted by Martin Dodd or Midlands Investment Agency Ltd., for any loss that may occur by a person acting or refraining from acting on the basis of this article.