Six mistakes to avoid
DRAW UP A PORTFOLIO PLAN AND STICK TO IT Investors are forced to listen through an increasing cacophony of market noise when trying to decide what to do with their life savings. Sticking to these six rules will help clear the air.
Modern communication means investors enjoy access to company information within moments, something that can be a double-edged sword.
It may produce better-informed investment decisions, but it could also overwhelm with too much information.
Here are six common investment mistakes. If you don’t know where you’re going, any road will take you there and it is easy to go astray. A personal investment plan clarifies:
Goals and objectives – what are you investing for and what do you want to achieve?
Risks – what risks are relevant to you or your portfolio? Your goals will determine appropriate risks.
Asset allocation – what percentage of your total portfolio will you allocate to local equities, international stocks and other asset classes?
Diversification – allocating to different asset classes will help you reduce risk. Most investors are too focused on the short term and do not stick to their trading plan. If you are saving for retirement 25 to 30 years from now, stock market gyrations in the next 12 months shouldn’t concern you.
Investors often look for easy opportunities. The “feel-good aspect” of making money drives them to chase the next big thing.
Investors make hasty investment choices based on too little actual research.
Rebalancing ensures your portfolio remains in line with your investment plan.
Rebalancing is difficult because it forces you to sell performing shares, and consequently make up a larger portion of your portfolio than you intended, and buy more of the shares that aren’t doing quite as well. For this reason, many investors do not rebalance their portfolios often enough.
When you invest money, you need to spend time and effort on your strategies.
You would not walk into a car dealership and buy the first car on the floor. It should take time before finally committing to the right car for you.
This factor has probably led to more poor investment decisions than any other.
Many investors select companies, strategies and sectors because of their recent performance.
This can be compelling if a share or sector has outperformed for a long time. But the cycle could be nearing its end. You need to stick to your investment plan.
Investors who focus on avoiding these mistakes are more likely to achieve their goals because they invest with the end in mind.
Grant Meintjes is head of securities at PSG Wealth.