Common investment mistakes
March 4th, 2009
To err is human” said Alexander Pope – but in investment, to err is expensive. What you can do, however, is look at the mistakes of others and try to avoid the most obvious pitfalls. Investors can make many mistakes but one of the most common is to follow the herd. When markets are high, they can scramble to invest, thinking they might miss out. Then, when markets are falling, they often sell out. The most recent example of both issues was the ‘dot.com’ boom. This first persuaded millions of investors to part with their savings thinking they were missing out on a chance to make ‘easy’ money. Unsurprisingly, the bubble then burst and many scrambled to get out without a thought about what might happen next. The lesson is not to get carried away in the moment – either to invest or to sell. Stories of large falls in markets can make investors nervous – but this is the nature of equity investment and selling on a short-term dip simply crystallises a loss – and can also mean missing out on both the eventual return to normality and the longer-term benefits. Markets will always go down as well as up – so if you are scared by such volatility, take advice. Perhaps equities are not for you. Finally, investors often believe they can time markets yet experts agree this is a near-impossibility. Investment should never be gone into lightly. Be clear about your objectives, your timelines and the risks – and make sure your portfolio is run accordingly.