The Seven Deadly Investment Sins
#1 Following the Crowd:
Sometimes you need to trust your own judgement.
#2 Caring too much or too little:
Keep your long term goals firmly in mind.
#3 Not diversifying:
There was nothing safer than the UK banking sector.
#4 Deciding you’re a genius:
Even the best investors make mistakes.
#5 Getting sentimental
Shares and investments don’t love you either
#6 Worrying about timing:
Invest today or wait until tomorrow.
#7 Paying too much tax:
Allowances that to often go unused.
The Seven Deadly Investment Sins
Essential Tips For Your Investments
Strategic Development Director Equity SMART
Stock markets around the world did well last year. The FSTE-100 index was up 14%, the Dow Jones Index in the USA rose 27% and the Japanese Nikkei index enjoyed a spectacular rise in excess of 50%.
Of course, these returns can’t be guaranteed and they don’t happen every year: but they have focused people’s minds on investments – and with the end of the tax year approaching it’s likely that the annual rush into Individual Savings Accounts may now see investors favouring equity ISAs over the cash equivalents.
The problem is, investors make mistakes – and we’ve seen the same mistakes repeated over and over again.
So here’s the Equity SMART guide to the Seven Deadly Sins of Investment, in the hope that you won’t make these all-too-common mistakes.
INVESTMENT MISTAKE #1: FOLLOWING THE CROWD
Warren Buffet is just about the most successful and the most famous investor in the world. He puts it simply: “You pay a very high price in the stock market for a cheery consensus.” Three centuries ago Baron Rothschild was rather more graphic: “The time to buy is when there’s blood in the streets.”
The point they’re both making is that sometimes you need to trust your own judgement and go against the crowd. If you buy an investment when everyone else is buying it then, as Warren Buffet suggests, you’re going to pay a high price for it.
Plenty of household names in the UK – Marks & Spencer, Next, Thomas Cook – have seen their share price flounder before recovering. Sometimes an investor needs the courage to ignore the mainstream opinion and back his or her own opinion.
INVESTMENT TIP #2: CARING TOO MUCH CARING TOO LITTLE
Some investors obsess about their portfolio: they check the value every day – sometimes several times a day. That’s all too easy to do now you can check values on your phone or your tablet – but it’s not always sensible.
If you obsess about your portfolio you can become too concerned by short term price movements. As the saying goes, investments can and do rise and fall in value. That’s their nature – and you need to keep focused on your long term savings and investment goals, not on a Tuesday afternoon when some particularly bad news from the USA affected stock markets around the world.
But don’t go to completely the other extreme and ignore your investments. If you only check the value of your portfolio once every three years then don’t be surprised if there’s a nasty shock waiting for you.
Whether you’re looking after your own investments or relying on reports from your financial adviser find a time frame that suits you; remember why you took out the investments in the first place and keep your long term goals firmly in mind.
INVESTMENT TIP #3: NOT DIVERSIFYING
You may well think that South Korean smaller technology companies are the next big thing: the investment fund that’s going to give you stellar returns.
You may well be right. Alternatively you may well be very wrong. If your portfolio isn’t diversified then you’re either going to do very well or very badly: and in our experience, that doesn’t fit the risk profile of most investors.
An investment portfolio needs to be diversified – you can still have an adventurous portfolio, but your investments need to be spread both geographically and by sector. Don’t have all your money invested in one country, and don’t have it all invested in one asset class. After all, there was nothing safer than the UK banking sector…
INVESTMENT TIP #4: DECIDING YOUR A GENIUS
Sadly you are not an investment genius. Every investor – however much homework they do and however experienced they are – gets decisions wrong. One of the worst mistakes you can make is to let a really successful investment decision go to your head, decide that you’re blessed with some special insight and then back every hunch you have without
a) researching it properly and
b) making sure that it’s part of a sensible, long term investment strategy.
Even the best investors make mistakes and sadly you – and I – are no exceptions to that rule.
INVESTMENT TIP #5: GETTING SENTIMENTAL
“That share owes me money!” If we had £1 for every time we’ve heard that phrase in the office then we’d be able to… well, not retire, but certainly eat in one of Manchester’s better restaurants. And that sort of emotion will do nothing but damage to your investment portfolio.
If you bought a share at £2 and it’s now valued at 50p it does not “owe you” £1.50 times however many shares you bought. The same is true for a unit trust or any other investment. Fifty pence a share is what the market thinks those shares are worth today; what you paid has become irrelevant.
And sorry to sound callous but shares and investments don’t love you either. You may have done very well out of XYZ Co in the past. But if they are under performing you have to take a logical view, end the romance and invest elsewhere.
INEVESTMENT TIP #6: WORRYING ABOUT TIMING
“Shall I invest today? Shall I wait until tomorrow?”
Far too many investors worry about timing, trying to buy at the very bottom of the market and sell at the very top. No-one manages to do this every time: it is far more important to save or invest consistently – and in line with your long-term goals – than it is to worry about getting your timing exactly right.
INVESTMENT TIP #7: PAYING TOO MUCH IN TAX
We’ve saved the most obvious one until last. Don’t pay too much tax on your investments. Make the most of your Individual Savings Account allowance which is:
- £11,520 for a stocks and shares ISA in the current tax year and
- £11,880 for the tax year which begins on April 6th
Remember that husbands and wives both have an ISA allowance and that there are other allowances, such as your annual Capital Gains Tax allowance, which all too often go unused.
Arranging your investment options tax efficiently can make a significant difference to your returns over the long term, and we’re obviously happy to talk to you about how you can do this.
In fact, if you have any questions about your investments or savings then and would benefit from some impartial investment advice – as always – we are only a phone call or an e-mail away.
Call us today on to schedule a complimentary initial consultation and discover how Equity SMART highly personalised approach to investment advice can make the difference you need.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested