Investment continues to be at the forefront of wealth management future-planning, but can also be a dangerous game if certain advice isn’t heeded.
Share this article
There are many common mistakes that people make, that can potentially be avoided with the right research and training. Here is some guidance on what we feel are essential takeaways from such activity.
1) Paying too Much in Fees
One of the most common mistakes in investment ,and something that can be avoided is paying too much in fees. These are not going to ruin your investment portfolio, but can take away some of the profits you should be making. An investor should always look for brokers that are charging lower fees than others, as the diversity between such commissions can often be fairly extravagant.
There are also low cost funds or exchange traded funds that can offer much lower options to consumers. In some larger cases, one often hires an experienced and sophisticated fund manager, which often sees a return on investment that is disproportional to the fees that are charged by brokers.
Fees can’t be avoided, as this is how brokers make their revenue. However, with the right due diligence and shopping around, their impact on your portfolio’s bottom line can be minimalised.
2) Sitting on Cash
Sitting on cash, especially on the fixed income side of things, is advised against by many senior figures in the wealth management sector. Fixed income works by paying out on a fixed amount of interest, with banks paying on money left in savings as the most user-friendly example. Many investors feel they will be getting similar returns, in comparison to long term bonds, but the ultimate consequence is that they are missing out on higher returns by adopting this strategy. For example, the average bond returns over 9%, whereas some of the top interest rates for savings accounts equate to 2%. As such, people are potentially missing out in viable returns through the adoption of this approach, especially over an extended period.
3) Not Learning the Basics
Not just in the investment industry, but in any aspect of wealth management, or indeed any future planning – understanding the basics is key. A good chunk of forex brokers will have a demo account in their offering, which ensures that those looking to trade are well versed in the nuances of the practice, prior to investing their real money. Risk free investments are a fantastic solution, whereby those looking to branch into the world of trading can use a forex demo account to invest on a market simulation. A virtual trading account contains trading capital which is both cybernetic and practical to gain the experience, prior to entering the real thing. This provides an excellent platform to refine your investment techniques.
4) Rebalancing Investment
Rebalancing investment is an essential, and heavily advised step, as markets will never remain the same. If they are performing badly, one should look at shifting some of these, so that investment funds are not going off course. This involves the allocation of funds between stocks and bonds, with the former usually being the more popular.
It is recommended by most experts that you should be looking to rebalance your portfolio as frequently as possible and at least once a year, so as to stay ahead of the game and minimalize the risk with your investment strategy. A popular theory to follow is that, if your assets have drifted by around 5-10%, then you should be looking to rebalance these as a matter of urgency.
5) Always Focusing on Past Winning Strategies
A common mistake is to always focus on winning strategies of the past, especially when markets are getting difficult. Many investors normally move to concentrate much of their portfolio on a previous working strategy, but this can be dangerous and may see them miss out on key market moves. Investors should always keep an open mind, and be sure to rebalance and use a diverse mix of markets for their investments. This assists with the minimalization and reduction of overall risk.
6) Lack of Patience
Patience is key to investment activity at any level. For those looking for sort-term hits, or quick-wins, forex investment isn’t the right activity. Investment encompasses a slow and steady process, with the investor highly unlikely to make a sudden windfall as a return from a relatively small amount invested. The key is to keep your expectations realistic and play the long game with the investment.
In conclusion, investment requires a significant element of skill and market research, if it is to generate the results that one would hope to see. Learning and understanding the core fundamentals of the practice is the most important foundation for any investor, with the growth in any activity being reliant in the deeper issues surrounding the more in-depth nuances of investment principles.