There are no guaranteed formulas or crystal balls for investment success, but there are some mistakes to watch out for.
1. Chasing Performance
Basing investment decisions on strong, recent performance instead of judging them on their risk/reward merits is one of the biggest offenders. If an asset class, strategy or fund has been outperforming in the past few years it may be nearing its end. Removing long term strategic investments to chase these short term high performing investments may seem like a smart move but can be costly. Investors should instead focus on their long term investment strategy and participate in a regular re-balancing of its asset allocation.
2. Poor Diversification
Diversification helps create an investment portfolio with varying asset classes and securities to meet different levels of risk and return in various market scenarios. Under-diversification involves excessively concentrated portfolios such as holding a few stocks - but this can have devastating effects. If the market moves against a particular asset class. Ensure your investment portfolio is well diversified for optimal performance against volatile market conditions.
3. Expecting Too Much
No one can predict or control market returns and successful investing takes a lot of patience and self evaluation. Your investment goals should be reflected in your asset allocation to match your risk profile and life goals. For example those with a higher tolerance for volatility can invest more of their portfolio in assets such as shares and property, whereas conservative investors may be better suited to a higher allocation of income assets like fixed interest and cash.
Brendan Collins has 25 year experience as an Accountant, is a SMSF Specialist and Qualified Financial Planner.
If you would like a full review of your existing investments, please contact our office today for an appointment with Brendan.