“To err is human” said Alexander Pope – but in investment, to err can also be expensive. You need to look at the mistakes of others then try to avoid the most obvious pitfalls.
1. 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. When markets are falling, they often sell out. One of the more well known examples of this sentiment driven investing was the ‘dot.com’ boom. Millions of investors parted 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.
2. Don’t 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. It 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.
3. Don’t believe you can time markets – 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.
Numerous studies have proven how people who have attempted to avoid stock market losses have in fact missed out on some of the largest stock market gains. You cannot predict the future, especially in the short term, so it is important to have a clear strategy over a reasonable timescale accepting that volatility is part of the ride.
By focusing on ‘value’ when investing and having clear objectives over the medium to long term, clients continue to see their investment returns grow and have ridden out much of the recent stock market instability created by the global debt crisis.
Contact us if you want to ensure your investments are positioned appropriately for the future.