Avoid These 3 Investment Mistakes

Investing

Avoid These 3 Investment Mistakes

Even the most experienced investors can make a wrong call on an investment, but what major missteps should you avoid? Three wealth management experts weigh in.

Written by Xiou Ann Lim on 19 May 2017

Everyone makes mistakes every now and again when it comes to investing, including Warren Buffet. But what investment mistakes should you avoid? Investment experts from three reputable firms – Cazenove Capital, Crossinvest and Golden Equator Capital share their thoughts and advice.

The Biggest Mistake Investors Make, According To Experts

Nicholas Moraitis

Senior Client Advisor at Crossinvest

Failing to understand the products they are buying and then not having a trusted advisor whom they can go to for investment advice.

Most investors are fairly busy individuals who trust their wealth manager or private banker to recommend products that best help them achieve their investment goals. One of the main problems with this, however, is that the risks are often not made clear – often due to fear that clients will not buy if these are spelled out.

Although investors aren’t expected to be expert financial analysts, asking a few simple questions can help to ensure that your investment profile is aligned with your risk appetite. The most important thing is to understand the worst-case scenario for any investment as well as the potential events that could lead to this.

Apart from that, you should also understand the fee structure – great returns can be eroded by high fees. It is therefore essential to not only make sure that the investment product has a strong performance versus its peers, but also that it has a reasonable management fee with a minimum upfront fee.

Finally, it is important to have one trusted advisor just so you don’t end up buying an investment that does not suit your risk profile or be in a situation where your portfolio is highly exposed to just one asset class.

The Biggest Mistake Investors Make, According To Experts

Caspar Rock

Chief Investment Officer at Cazenove Capital  

Selling shares that have increased in price while holding on to assets that have decreased in value.

Human behaviour has a far greater influence on portfolios than you could ever imagine.  For example – rather than reviewing a position in a portfolio on a standalone basis agnostic of cost – independent research has indicated that investors are about 50% more likely to sell a winning (profitable) position than a losing (unprofitable) position. This is known as the disposition effect.

The Biggest Mistake Investors Make, According To Experts

Andreas Schwarz

Director, Wealth Manager at Golden Equator Capital

Speculating more than they are investing.

This is reflected in betting on rising prices of an asset class with no clear strategy in place, rather than pursuing a strategy of income via income-producing assets, for instance.

The safer investors feel and the more money they make in the capital markets, the more risk they are prepared to take on in order to increase their profits – as they feel a false sense of security. Hence, this leads to excessive risk-taking, which might end badly if the markets turn or their chosen stocks fall out of favour with other shareholders.

Furthermore, it is essential to control your emotions – as many emotionally driven trades often lead to losses. Positive and – worse – negative emotions that effect your state of mind and consequently your decision-making usually drive these losses, especially when markets are volatile.

Additionally, many investors do not have a disciplined investment approach – which is required to perform well in the capital markets. They go into a trade without having a clear exit strategy and would hold on to falling stocks in the hopes that they will rebound – which they might never do.

Therefore, it is important to be prepared for any scenario and have an exit strategy in place before entering a trade.

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