The first rule of investing is there are no rules for investing.
And like any game, no rules means anything can happen and probably will. So, investors need to take stock of what is going on around them and act according to how they assess risk.
Experience shows that investors can make mistakes – and here are the top 10:
- Separate money and emotion
If you want to buy something because you like it, then buy art and not shares or bonds. Don’t let your heart sway your judgment and run that risk checklist in your head before parting with any cash
- Look for value not performance
Shares and commodities rise and fall all the time, and generally there’s a reason for the movement if you look hard enough. Momentum investors follow the market but professionals look for value not volatility
- Get the timing right
Buying or selling at the wrong time can lead to big losses. Good investors know how to ride a winner for maximum profits, but also when to call it quits and cut their losses on a falling position
- Lack of diversification
Those eggs in one basket can leave investors with egg on their faces if that sector crashes. Check for tied investments – like mining and Chinese growth or buying into funds that invest heavily in shares you already hold.
- Don’t surrender to yield
Every investor wants to squeeze the maximum return from an investment, but consider why yields are high and if they affect the liquidity of the business
- Small portfolios
Everyone starts somewhere, but do not stuff money into one share or sector – diversify from the outset to reduce risk
- Big portfolios
Have a strategy and invest across a number of sectors. Big portfolio investors can afford to split their investments between safe as houses and those that carry a little more risk. Don’t forget that with a higher risk come the chances of increasing profits and failure.
- Keep an eye on your investments
Markets move fast, so you need to keep a watch on what’s going on and how movements affect your portfolio. Don’t leave them to fester.
- Don’t knee jerk
Investment is not about short term speculation, but medium to long term growth, so you are looking at a five to 10 year plan
- Take your profits
Cashing in good performers and reinvesting the money to broaden your portfolio is a good strategy.