Avoid investment stresses
Don’t sabotage your portfolio by making these crucial mistakes
EVERY investor stresses about the performance of their portfolio: What’s performing? What’s not? Do any changes need to be made?
But in many instances, it’s not the individual investments that are the problem; it’s the investors themselves whose behaviour sabotages their portfolio. The classic investment saboteur makes these six mistakes: This is the No. 1 cause of investment stress and can lead to emotional knee-jerk decisions when investment performance doesn’t go to plan. Every investor must have a strategy for their portfolio which matches not only their long-term goals for building wealth but also their tolerance for risk.
That strategy should be developed in consultation with a professional adviser, be written down and reviewed regularly. It should reflect the needs of the individual investor and form the blueprint of any decision making.
It should also reflect the investor’s appetite for risk and stage of life. A cautious investor with a high-risk portfolio is a recipe for disaster and likely to lead to panic, rather than objective-based decisions, if things go awry. individual assets are constantly moving in cycles, they rarely stagnate for any length of time. While a “set-and-forget” portfolio would be an ideal outcome, it just doesn’t happen.
A regular review of the balance of the portfolio is needed to ensure it’s still meeting the objectives of the investor, and that performance isn’t skewing it in a different direction. An important part of that allocation is balance across asset classes and just individual investments.
Most Australians, for example, don’t count their home as part of their overall property exposure, which means there is a general imbalance towards bricks and mortar and being underweight in equities.
It’s also a good discipline to help encourage taking profits on good performers and cutting the losses of poor performers. Plus it should be part of a tax strategy to manage potential capital gains and losses. Professional investors can trade investments on a minute-byminute basis as they take mortals, we have other careers and interests so our investing tends to be more conservative and passive by comparison – as it should be.
The danger for investors can be a middle ground, where they don’t have the knowledge of a professional, trade their portfolio excessively in reaction to the constant stream of data and news, and get lost in a frenzy of
activity. The pressure is on all investors to keep accurate records of all investments. It’s a demand of the tax office and also the regulators and auditors of self-managed super funds. Yet good record keeping is still the most lethal saboteur of portfolios. Given the access and low cost of portfolio management software, there really is no excuse not to be on top of administration. the best investment portfolio for you as an individual is a good strategy for success. Just don’t take it to the extreme.
You must always make the final decision on not only the strategy and makeup of the portfolio but also on any changes that may be made.
If you don’t understand, or disagree, with why an adviser is making an adjustment, ask for further explanation. If you still don’t understand, then you’re probably with the wrong adviser.
Trusted advisers can have a powerful impact on your portfolio and your stress levels when investing. But, like every profession, there are good and bad advisers. Identifying a
bad