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| The eight investing mistakes for a beginner |
News Clone Global - Whether you’re new to investing or you’ve been playing the stock market for years, it’s easy to make mistakes. Avoiding these errors can mean much better returns.
1. Lack of investment goals
One of the most frequent investing mistakes is investing without a purpose.
Investors often decide how much risk they are prepared to take with their money, but rarely consider how much risk they need to take by establishing clear financial planning goals.
2. Chasing last year’s winners
Investors often jump into funds or asset classes that have strong short-term performance, believing that this outperformance will continue.
However, short-term does not always translate into long-term performance. And if you don’t think for the long term you risk putting your money in at the top of the market, where strong performance has already been achieved.
Similarly, investors often panic when a fund falls and sell – crystallising their losses just as performance is about to turn.
3. Trying to time the markets
Trying to time the stock market is always tempting, but almost always doomed to failure. However, many individuals get swayed by short-term noise, performance or market sentiment.
A much better investment strategy is to think long-term and “drip-feed” regular amounts into funds or other investments each month. This will help smooth out volatility.
4. Not understanding an investment
Some types of investment are highly complex and only suitable for experienced investors. Unfortunately some novices plough money into asset classes that they know nothing about.
Investing in what you do not understand can result in your taking many unnecessary risks. For example, you may not understand that you are exposed to the movement of foreign currencies and then be caught out if they fall.
Unless you have read the small print and understand it, do not get involved.
5. Not diversifying
“Don’t put all your eggs in one basket” is certainly true in the investment world. For example, some people put all their money in property even though a property crash could be devastating.
A well-diversified portfolio should have a combination of equities, fixed interest, property and cash, with weightings determined by the risk profile of the investor.
6. Having an inefficient portfolio
Constructing an inefficient portfolio, where the expected return is too low for the amount of risk taken, is a common investing mistake.
Various investment assets behave differently, so getting the mix right is important to maximise potential returns for a certain level of risk.
If you are not sure about how to construct an efficient portfolio an adviser may be able to help you.
7. Not taking advice
Independent financial advisers can help investors find the right investment portfolio for their financial goals and risk profile.
Those that choose to go it alone, without knowledge or experience, often only realise their mistakes when it is too late.
8. Not understanding charges
Investors have a tricky balancing act when it comes to charges. Ideally, these will be as low as possible, but this should not be at the expense of making the right investment.
Passive tracker funds are cheaper than actively managed funds. But in many instances it is worth paying higher charges for the knowledge and experience that a fund manager brings to an active fund.
The eight investing mistakes for a beginner
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Oleh
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