Q wealth: IN­VEST­MENT MIS­TAKES

Q Magazine - - Q Wealth -

The com­mon in­vest­ment mis­takes you need to avoid There are plenty of mis­takes that you can make when it comes to in­vest­ing. I tend to group them into two main cat­e­gories. The first group we will call the fun­da­men­tal mis­takes, and the sec­ond we will de­scribe as the tech­ni­cal mis­takes. So, what are the fun­da­men­tal mis­takes that in­vestors com­monly make?

Be­fore I can an­swer this ques­tion, let's take a step back and es­tab­lish why peo­ple in­vest in the first place. They are look­ing for an in­vest­ment to re­turn cap­i­tal growth, or pre­dom­i­nately in­come or a com­bi­na­tion of the two. Growth as­sets will ap­pre­ci­ate in value over time and they in­clude prop­erty, shares, rare me­tals, art, col­lectibles, etc.

In con­trast, in­come-pro­duc­ing in­vest­ments are typ­i­cally made in term in­vest­ments, govern­ment bonds, cor­po­rate bonds, and other in­vest­ments fo­cused on cash-on-cash re­turns. In­vest­ments that can pro­duce growth and in­come in­clude cer­tain prop­er­ties and shares

Now to an­swer the ques­tion…

3 of the big­gest fun­da­men­tal mis­takes we see in­vestors mak­ing are:

1. Not know­ing why they are in­vest­ing in the first place. Many in­vestors sim­ply en­ter the mar­ket throw­ing their hard-earned dol­lars into one in­vest­ment or an­other with­out ever re­ally ask­ing why they are get­ting up each day and in­vest­ing at all. They do not clearly iden­tify their pur­pose for in­vest­ing. Is it just to have enough money so they can sur­vive in re­tire­ment? Or are they look­ing to leave a last­ing legacy for thier fam­ily, or per­haps it is to cre­ate an en­dur­ing char­ity? What­ever, your rea­sons are for in­vest­ing, hav­ing a clear un­der­stand­ing of them can help you stay fo­cused and make bet­ter in­vest­ment choices.

2. Not know­ing what they are in­vest­ing for. Many in­vestors will fail to take the time upfront to cre­ate their in­vest­ment blue­print. That is, they do not have a clearly de­fined endgame or a path­way that will map out the ex­act strate­gies they in­tend to fol­low. This type of in­vestor typ­i­cally jumps from one thing to an­other with­out a clear in­vest­ment plan. Some­times they might get lucky and some­times they might lose ev­ery­thing.

3. Not fully un­der­stand­ing the in­vest­ment they are mak­ing. Now ob­vi­ously, if you do not know why you are in­vest­ing, or have a clear strat­egy to fol­low, you are go­ing to be left mak­ing de­ci­sions based purely on the strengths (or weak­nesses) of the in­vest­ment it­self. Un­for­tu­nately, many in­vestors will fall into in­vest­ments based on the prom­ise of quick riches or they have had a re­fer­ral from friends or fam­ily, or they may have read some­thing on the in­ter­net that claims to be the next big thing. Of­ten they do not un­der­stand the in­vest­ment and sim­ply get swept up in the hype or sen­ti­ment around this in­vest­ment. Bit­coin and other dig­i­tal cur­ren­cies could be a re­cent ex­am­ple of an in­vest­ment class where many peo­ple in­vest­ing in it do not fully un­der­stand the fun­da­men­tals be­hind the in­vest­ment.

So, what are the 3 big­gest tech­ni­cal mis­takes that in­vestors com­monly make?

1. Putting the cart be­fore the horse. Of­ten peo­ple will fo­cus solely on the tech­ni­cal details of any prop­erty. For ex­am­ple, where the prop­erty is lo­cated, his­tor­i­cal growth rates, yields, or prox­im­ity to schools, shops and trans­port. This is im­por­tant in­for­ma­tion to gather and un­der­stand, how­ever only af­ter you have de­cided if, and how, you are go­ing to use prop­erty to gen­er­ate the wealth re­sults you are tar­get­ing. In other words, are you even go­ing to in­cor­po­rate prop­erty into your wealth mix and if the an­swer is yes, how will this prop­erty fit in with your over­all wealth strat­egy Are you in­vest­ing for cap­i­tal growth, rental yield, or value-added strate­gies such as ren­o­va­tion, sub­di­vi­sion or de­vel­op­ment? Only once the strat­egy(ies) has been iden­ti­fied should we move into the tech­ni­cal anal­y­sis of any prop­erty.

2. Not fully un­der­stand­ing the in­vest­ment cy­cle. Some peo­ple er­ro­neously be­lieve that all prop­erty is go­ing to con­tin­u­ally in­crease in value. It is im­por­tant to un­der­stand that prop­erty, like any as­set class, will go through pe­ri­ods of growth, pe­ri­ods of flat­ness, and pe­ri­ods of de­cline. The skill as an in­vestor is know­ing which stage a prop­erty mar­ket is at and mak­ing in­vest­ment de­ci­sions ac­cord­ing to their plans and strate­gies at the right time of the mar­ket. Un­for­tu­nately, many un­e­d­u­cated or un­der­e­d­u­cated in­vestors will find them­selves buy­ing at the wrong time of the mar­ket cy­cle.

3. Not fully un­der­stand­ing the data they are us­ing to make their in­vest­ment de­ci­sions. We re­ally don't have time here to take a deep dive into all the data, in­for­ma­tion and re­search that in­vestors need to re­view to earn their ‘black belt' in prop­erty re­search and tech­ni­cal anal­y­sis. How­ever, suf­fice it to say, many in­vestors have a lower level of un­der­stand­ing com­pared to what they may need to get the best re­sults. The chal­lenge is in mak­ing sense of all the data and the of­ten con­flict­ing opin­ions when it comes to in­vest­ing. If this is an area you would like to gain more knowl­edge in then we sug­gest you check out our events page by click­ing https://www. the­p­rop­er­ty­men­tors.com.au/events-and-work­shops/

Fi­nally, as ex­pe­ri­enced in­vestors our­selves, and hav­ing had the op­por­tu­nity to work with lit­er­ally thou­sands of in­vestors over the years, we have seen and made our fair share of mis­takes. The choice for you as an in­vestor is, do you want to con­tinue to make the same largely avoid­able mis­takes your­self, or are you look­ing to short-cut your learn­ing ex­pe­ri­ences and fast-track your in­vest­ment re­sults by work­ing with an ex­pe­ri­enced m men­tor and guide?

Luke Har­ris and Matthew Bate­man are co-founders of The Prop­erty Men­tors, a Melbourne-based busi­ness com­pris­ing an elite team of prop­erty pro­fes­sion­als who ed­u­cate, mo­ti­vate and fa­cil­i­tate clients from all around Aus­tralia. Their new book, Let's Get Real (Ma­jor Street Pub­lish­ing $29.95) is now avail­able.

For more in­for­ma­tion visit www.lets­ge­tre­al­book.com.au/give­away

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