Five Investing Mistakes to Avoid
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
Are you doing enough with your money to reach your investment goals? The latest True Potential Savings Gap research shows that most people have been saving less in the last three months, meaning there could be shortfalls in eventual retirement pots.
Those who moved their investments into cash, or stopped investing during the recent Coronavirus lockdown, may have missed opportunities as markets started to recover in late March. Some investors may have looked at February’s market declines and thought it was safer not to be invested, but if you pulled your money out on March 23rd or the weeks before, you’ll have missed all the growth since that date as well as the chance to invest at a lower unit cost.
It’s a common investing error, getting emotional and reacting to short-term volatility. Those investors who stuck to a long-term plan, left their money invested and continued to invest into their Portfolio are now seeing the benefits of the recovery.
Here are some of the investing pitfalls to avoid if you want to do more with your money:
1. Timing the market
It’s a cliché, but it is true, investing is all about time in the market rather than timing the market.
None of us can guess what will happen an hour from now, let alone a month from now even the greatest of fund managers don’t know for certain what will happen next, so predicting the most effective time to invest is a waste of time.
Take earlier this year for example, when Brexit was done, and the US and China agreed a trade deal. On the face of it, if you were trying to time the market, it looked like as good of a time as any. What happened? Coronavirus came along and in a tiny period of time had paralysed the world economy. Timing the market just doesn’t work. You can never know when the next great fluctuation will present itself.
What is much wiser, is time in the market. If you are invested for twenty to thirty years, it really doesn’t matter if a 2008 financial crisis or 2020 Coronavirus impacts your investment. In the short term, they will supress the effectiveness of an investment, but just look at the long term since 2008 – even now amid the Coronavirus you’d still be significantly up on your wealth with investments held since the financial crisis.
The message is simple, we believe it is better to stay invested and keep investing, and you could ride out fluctuations in the market.
2. Leaving it until later
When it comes to saving for retirement, it is easy to get sucked into the idea that you’ll have time later in your career to invest. The illusion can be that you’ll have more money later in your career, and less pressing things to buy.
You are much better investing little and often now, rather than investing much more later.
That’s because the effect of compound growth takes time to multiply. It is good to invest more later in your career, but this won’t have the time to grow in the same way as investments made today.
You can build up decades of growth upon growth if you start investing properly in your twenties and thirties. This compound growth means that those who invest a little for longer, can retire richer than those who invest a lot for a short period nearer retirement.
3. Don’t put all your eggs in one basket
For some investors, the idea of backing the next Amazon or Netflix can be too much to resist. However, individual stock picking can lead to losses or disappointing growth compared to more rounded investment funds.
Diversification is key. By not putting all your eggs in one basket, you are less exposed to potential fluctuations in the markets. In fact, if one region of the world underperforms, you may see overperformance in another region as a result. This way your money is less susceptible to volatility, and at True Potential our Portfolios are globally diversified in different asset classes, giving you an investment which aims to minimise risk and maximise performance.
4. Emotional stress
Don’t let your emotions get the better of you when investing. There’ll always be some sort of political event like a Brexit or a natural disaster like the Coronavirus. At the time, it’s human nature to feel like your investment is under threat, but when viewed through the lens of a twenty to thirty year investment goal it can put things in perspective.
Investors have seen this over the last few months with Coronavirus. While the news headlines dominated with hype over the economy, the reality was that markets started recovering after the dip. Those who let emotions rule and hadn’t been invested during that period missed out on the market growth.
5. Avoid get rich quick schemes
Investing is a “get rich slow” scheme, an effective way to build towards your goals for the long-term. What you want to avoid is get rich quick schemes, which are increasingly prevalent with trading platforms and app based investments which present investing as almost a game to be played.
Boring is better. Invest for the long term, with regular investments to close your gap to goal. Compound growth and globally diversified Portfolio are a proven ways to build towards your goals, and with True Potential’s award winning technology you can track your performance or top up your investment at any time.
Do More With Your Money.