Learning from Investing Mistakes
Hints and tips to help you move on
“All men make mistakes, but only wise men learn from their mistakes.”
Some of the world’s most successful people didn’t get there without making some mistakes along the way. So when it comes to investing, if you make a mistake, this shouldn’t deter you. When you make a bad investment decision this can help you more than your good ones. They hurt, but they do make you a better investor if you learn from your mistakes and start thinking differently from your experience.
Other people’s errors can be equally informative. Here’s five of the most common investment mistakes people make and how you can learn from the errors of their ways.
Click Read more to see the rest of this great article from BT.
The 5 most common investment mistakes
1. Buying at the top
Often when you rush to get into a hot market, the money has already been made. Thousands of investors burnt their fingers this way buying technology stocks in 1999 or speculative mining stocks in 2007
Don’t get caught up in investment hype and give in to greed. Don’t try to time the market. Stick to your long term game plan, and get advice.
2. Selling at the bottom
This is ‘Buying at the top’s’ ugly cousin. Where buying at the top is giving in to greed, selling at the bottom is giving in to fear. You become increasingly uneasy as the market falls until finally you can’t stand it. You sell out and put your money into cash. Millions made this mistake at the depths of the Global Financial Crisis in 2008/09, when investors sold out of their losses in shares and moved into cash, only to find the Australian market alone recovered more than 37% over the next 12 months. It can spell disaster for your long-term financial health by turning a paper loss into a real loss and stopping you from profiting from the inevitable recovery.
Remind yourself that markets are cyclical and as a result, don’t panic when markets become volatile. If you think there is any danger you will bow out when markets are in decline, get advice about the possibility of rebalancing the amount of growth assets in your portfolio, particularly when markets are getting close to a peak.
3. Putting all your eggs in one basket
If your investment mix is heavily invested in one type of asset, share, industry etc. when the bottom falls out of the market, you could leave yourself exposed to a loss. This is also known as “concentration risk”. You often hear it at dinner parties: “I only invest in rental properties” or “All my money is in bank stocks”. But by concentrating your investments, you are placing your portfolio at a higher risk of under-performing, if your assets fails or just doesn’t perform as expected.
Don’t get caught unawares. Run the numbers on your portfolio to make sure it is diversified across a wide variety of markets, sectors (if you’re interested in the automotive industry, for example, you might want to invest in a well-known company but also buy Nio shares – Nio aktie kaufen – to tap into the electric car market too), managed funds and other types of investments (Australian shares, international shares, property, fixed interest and cash for example). In essence, as the saying goes, ‘don’t put all your eggs in one basket’.
4. Making decisions on past performance alone
As investor Warren Buffet says, “If past history was all there was to the game, the richest people would be librarians”. A share, property or managed fund may have performed brilliantly over the past one year, three years or five years, but that doesn’t mean it will do so in the future.
The future is what you need to be thinking about when you are investing, not the past. Dig deeper when you are researching your next investment. Before you invest, look at the fundamentals of an investment type or the investment process of a managed fund.
“I knew I should have …” This lament is often heard after a particular market takes off or falls. You know what you should do but something stops you from putting it in place and you miss out on making money.
Write down a long-term wealth plan and then speak to a financial adviser to work with you to develop and implement putting your plan in place.
When looking at investing, it’s important to recognise your mistakes, however it is more important not to make the same mistake twice. By overcoming your emotions when investing you can learn and put in place measures to ensure mistakes don’t happen again. Think long term, be disciplined and learn from your mistakes and you will reap the rewards.
MB+M offers a range of advice on investing and planning your super. Give us a call on 5831 1233.
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