The investment universe can be quite daunting to the average person. However, that should not faze you because investing can be easy. Don’t fall into the trap of committing these common investment mistakes.
#1 Investing in a Savings Account
Many people put every extra cent they have into a savings account without considering investing a fixed amount every month. Warren Buffet has famously said that, “You should ensure you save before you spend and not spend before you save.” Commit to an investment plan and expose yourself to investments that can have inflation-beating returns so that you get real growth, unlike what you can get from a savings account.
#2 No Exposure to a Single Asset Class
The investment world is made up essentially of four asset classes – Equities( Shares), Property, Bonds (buy corporate or government debt and earn interest) and Cash. A mistake committed by many is not exposing themselves to all the asset classes. In the current turbulent financial economies of the world, this is a mistake that can be very costly. Ensure you are diversified fully and have exposure to all these asset classes both locally and abroad.
#3 Ignoring Inflation
A lot of people ignore the negative impact inflation can have on your investments. If for example your investments are yielding a return of 5% per annum but inflation is 7% per annum, you have in theory lost 2% of the purchasing power of your investment. Make certain you are able to have inflation-beating returns by maximising and controlling your exposure to equities based on your level of risk as an investor.
#4 Ignoring Tax Consequences
Investments are liable for a range of taxes, with capital gains, dividends and income tax being the most prevalent examples. Investors should ensure that they have structured their investment portfolio to be as tax-friendly as possible. This can be done (for example) by investing in a retirement annuity and endowment type structures to maximise your tax benefits.
#5 Making Emotional Decisions
Investing should always be a long term plan, with the minimum period being at least 1-2 years. In this time market fluctuations will result in your investment amount increasing at times, but even worse – decreasing at times. It is important to not be emotional when this happens and decide to ‘sell everything.’ Rather stick to a long term investment strategy with the guidance of an advisor, this will result in long-term success and growth – instead of actually realising losses, then spending your investment life trying to get back to even.