Whether you are a first-time or experienced investor, the stakes are high when it comes to investing. Even the most savvy investors can fall into the trap of bad investment habits.
Although there is no guaranteed formula for investment success, there are some mistakes to watch out for:
Basing investment decisions on strong, recent performance instead of judging them on their risk/reward merits is one of the biggest offenders. If an asset class, strategy or fund has been outperforming in the past few years, it may be nearing its end. Removing long-term strategic investments to chase these short-term, high performing investments may seem like a smart move but can be costly. Investors should instead focus on their long-term investment strategy and participate in a regular rebalancing of its asset allocation.
Diversification helps create an investment portfolio with varying asset classes and securities to meet different levels of risk and return in various market scenarios. Under- diversification involves excessively-concentrated portfolios, such as holding just a few stocks – but this can have devastating effects if the market moves against a particular asset class. Ensure your investment portfolio is well- diversified for optimal performance and to protect against volatile market conditions.
Expecting too much
No one can predict or control market returns; successful investing takes a lot of patience and self-evaluation. Your investment goals should be reflected in your asset allocation to match your risk profile and life goals. For example, those with a higher tolerance for volatility can invest more of their portfolio in assets, such as shares and property, whereas conservative investors may be better suited to a higher allocation of income assets like fixed interest and cash.