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Big investment mistakes Part-02

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1Big investment mistakes Part-02 Empty Big investment mistakes Part-02 Sat Nov 17, 2012 6:15 pm

CSE.SAS

CSE.SAS
Global Moderator

Big investment mistakes Part-01

http://forum.srilankaequity.com/t24499-big-investment-mistakes-part-01


6. BEING DUPED BY MARKETING SPIN

Has an investment ever caught your eye, promising mouth watering returns and a guaranteed return of your capital? With interest rates at 0.5% p.a. and the best long-term fixed interest savings bonds at just under 5% p.a., it is impossible for an investment to provide a secure income in excess of this and a guarantee that your capital will be returned, said Danny Cox, head of advice at Hargreaves Lansdown.

“There has to be a risk to either your income or your capital or both. Over the last ten years or so there have been some very high profile product failures.

“It’s far better to be realistic about the returns you will receive and to work on the basis that if it looks too good to be true it probably is.”

7. STARTING TOO LATE

Not investing early enough is another common mistake. McDermott said “Unfortunately, many people put off saving until later in life, by which time they need to save big, often unachievable amounts of money each month to reach their goals.”

“The power of what is known as compounding – making returns on returns by reinvesting dividends – is huge and investing just a small amount each month could result in a very healthy pot of money over a long period of time.”

8. TAKING TOO MUCH OR TOO LITTLE RISK

Investors should have a pretty consistent attitude to risk, but many don’t. People tend to be more bullish when investments are doing well and often invest in higher risk areas, which leave them exposed if investment sentiment turns. Likewise, when investments are doing badly or are volatile, many investors take too little risk meaning they miss out when investments rebound.

Holding too much cash means you could miss the bounce and your capital could be losing value in real terms if it fails to keep up with inflation.

It is as equally important to derisk your portfolio as you approach the time when you will need to crystallise your investments.

“As investors near their goals they should be thinking about derisking their investments so that should markets fall dramatically they don’t lose 30% of the money they need next month, for example. Often this isn’t done, with dire consequences,” warned McDermott.

9. THINKING CHEAP IS BEST

High investment costs can eat up your returns. Following two years of research, the Royal Society for the encouragement of Arts, Manufacturers and Commerce (RSA) found that a huge proportion of our pensions disappear in fees, with charges swallowing up to 40% of the value. Make sure you’re not paying over the odds for your investments.

At the same time, don’t fall into the trap of thinking that cheapest is best. McDermott said: "There have been a lot of stories around fees recently, both for fund management and advice, and the danger is that too much emphasis is being placed on the cheapest way to invest. This isn’t necessarily the best way to invest. Don’t waste money, certainly, but value for money is more important.”

10. LOSING OUT TO THE TAXMAN

Tax considerations alone shouldn’t determine your investment decisions. In other words, don’t let tax tail wag investment dog.

However, do make sure you are taking advantage of all suitable tax breaks on offer. Not using your individual savings account (ISA) allowance will almost always be wasting tax or the potential to save tax.


Please remember that past performance is not a guide to future performance.

The views expressed in this article are those of the author and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.

2Big investment mistakes Part-02 Empty Re: Big investment mistakes Part-02 Tue Nov 20, 2012 6:40 pm

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

Thanks mate.

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