This month we look at some of the common investment mistakes made by DIY investors. Some are new, but most are not. Here are some traps to avoid:
Don’t think “Invest big or not at all”
While it is great to be able to invest a large amount at once, this is not always feasible and this should not be a deterrent. Investing what is possible early on may not yield big returns, it will start building a portfolio. Start early. As income increases, so will your investments.
Don’t rely on past performance
Past performance is no guarantee that an investment will continue with the same trajectory. Evaluate each investment individually and understand how it fits into your overall portfolio.
- Don’t focus on looking only for the next Apple or Amazon
Everyone wants to be the first to discover the next big thing. The truth is, there is no quick fix for investment success. It is nearly impossible to identify the next huge stock so don’t get preoccupied with this task. Investing for the long-term and practicing patience will almost always provide desired results.
Don’t get stuck looking only locally
Many investors are afraid to invest abroad because of the perceived risk. Yes, there is some risk involved in currency, but global investments is another way to diversify a portfolio and lower risk. All investments bring an inherent level of risk, understanding what best suits your personal situation is the key both locally and globally.
- Don’t think higher fees mean better performance
This is often a myth we tell ourselves to justify high fees but it isn’t always true. If a person pays three per cent fees, the fund would need to generate eight per cent returns to make a five per cent profit. If that fund, on the other hand, underperforms and remains below the benchmark the high fees are now an added cost on top of the loss. Seek a service that ensures excess fees are only charged when the portfolio shows gains – in essence make sure you only pay for performance.