Successful investing: the three most common mistakes to avoid
Written by Jordan Donald on September 20, 2018.
If you’re investing for the future – which you definitely should be – then you obviously want your money to be working as hard as it is possible for money to work to deliver the best possible return. Of course investing is not an exact science – if it were, we’d all be millionaires - but there are some key mistakes that you should avoid in order to give your investments the best possible chance of delivering for you. Here are the top three:
1. Short term thinking
Compound interest is the investor’s best friend. Science superbrain, Albert Einstein, rated it so highly he called it the ‘eighth wonder of the world’. And compound interest’s best friend is time, which is why you should prioritise long term investment horizons over short term speculation. Forget the clichéd image of the pro investor, constantly playing the markets, buying and selling, à la Gordon Gecko. Bear in mind that institutional investors will have far deeper pockets than you, far more experience in trading and access to insider information before it reaches the hoi polloi, when it will already be past its sell by date. Besides, the pro-est of pros, investor extraordinaire, Warren Buffet, definitely favours time in the market over timing the markets. He understands the power of compounding and knows that time can help manage and reduce risk by riding out cyclical economic turbulence. If it’s good enough for him…
2. DIY investing
Many expats succumb to the temptation to dabble in the forex markets when their lives become multi-currency. But before you go risking your hard-earned cash let me tell you about the 90/90/90 rule. It’s not something many people outside of financial circles are familiar with but it’s a basic rule of trading. It means that 90% of retail investors/traders lose 90% of their money in the first 90 days. Pretty shocking isn’t it?
This is why it is a good idea to leave investment and trading to the professionals. A good investment manager will help you pick a portfolio that is right for you based on some key fundamentals. A key one is diversification by asset type and geographical location to avoid putting all your eggs in one basket and keep your portfolio balanced.
And a portfolio rather than a fund is definitely the way to go. Why would you go out and try to pick the best fund out there for yourself when you could opt for a portfolio made of already diversified funds which will reduce your risk? Not to mention the fact that you might not even have the money to gain entry to the best funds given that some institutional funds require US$1million to buy into them.
3. Badly managed investments
I like to use a Top Gear analogy to illustrate this point. The Lamborghini Murciélago is an exceptional car in anyone’s book but there’s no doubt that the Stig will get a far better performance out of it than James May. A high performance product – whether it be a car or a portfolio – is only as good as its driver so it makes sense to choose investments options with portfolio managers who are consistently outperforming their peers. Investing via Infinity makes this easy as we work with award-winning investment manager, Tilney, whose in-depth research enables them to identify underperforming fund managers and steer clients’ funds away from badly managed investments into portfolios which are performing well.
So there you have it: think long term, seek investment advice from the professionals and make sure you are choosing investments which are performing and you’ll maximise your chances of a healthy return on your investments. For help in achieving investment success, why not contact me at Jordan.firstname.lastname@example.org for a free initial financial planning consultation?