Maybe you have been investing for a while and are not getting the results that you had hoped for. Maybe your investments all seem to go south as soon as you put money in. Perhaps you are now losing your nerve and are starting to think that the deposit account is the best place for your hard earned money or better still in the biscuit tin in your sock draw.
But wouldn’t it be great if you can change all that. Imagine what you would feel like if your investments made money, made a profit over the long term. How would you feel if your had a successful portfolio. My guess is you would happy and quite a bit happier than most investors.
So, if the first description sounds like you and you would like to be like investor number 2, maybe we need to answer a few questions as to why it’s happening to you and how to avoid those mistakes. You see having a successful portfolio can be as much about avoiding the mistakes as can be about making good decisions.
So what are the big mistakes investors make?
- They rush in when the market is rising for no reason
- They lose their nerve when the markets are falling
- They invest when they get a hot tip
- They put all their eggs in one basket
- They don’t understand the level of risk they are taking
- They take far too much risk
- They don’t understand the investment and how it works
Let’s look at these mistakes in more detail.
It’s an age old problem that people pile into the market when it is nearing its peak. If your granny is getting in on the act be very worried.
Having made the first mistake the very same investors, very quickly lose their nerve and stall out of the market as the value starts to fall, fearful that they are going to lose even more or worse still everything.
Sometimes investors get caught by the old “I’ve got a great tip, but you’ve got to move fast” This rarely works out well and if you have been caught by this in the past, chances are you did not really know what you were investing in.
Some investors have favourites, because they have had success in that stock or sector in the past. Just because you made money once does not mean it’s the right place to invest right now.
Risk is widely misunderstood and often overlooked by investors. If the share is rising, the investor decides to buy, without thinking if it is a risky investment or a more cautious one. Smaller company shares are usually more risky than FTSE 100 shares for example.
Further along the spectrum of risk some investors think they have to really go for it to get results. Remember the tech bubble? This was hugely risky and many investors lost a lot of money.
And the curse of many investors is they don’t really know what it is they are investing in. A golden rule of investing is to understand what you are getting yourself into.
So what is the best strategy to investing?
Here are few tips that I have learnt over the years
- Know how much you have to invest and how much you can afford to lose
- Know how much risk you can afford to take
- Know what your exit plan is
- Always take a long term view
- Be brave when the market is falling
- Be cautious when the market is rising rapidly
- Have a diversified range of investments
Investing successfully can be a serious challenge for all of us. I am very much on that investment journey myself.
Always consult a qualified financial adviser before making any tax or investment decisions. The above article is only for guidance and should not be taken as advice. If you would like to talk to me about getting your future investments on track please contact me.
Contact Martin Dodd on 01902 742221 or email him at [email protected] if you would like talk about money issues.
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