To help you avoid some of the pitfalls of investing, here are some examples of the mistakes people make.
Putting all your eggs in one basket
It is important to spread your risk with a diversified portfolio of assets. In other words, don’t put all your money in equities. You are not certain to make a profit and may lose money.
Following rumours
Do your own research, or seek professional financial advice.
Following advice blindly
Make sure that you understand the implications of any financial advice you are given.
Assuming recent trends are stable
Equity markets can behave in unpredictable ways. Just because the market moves in one direction for years on end, this doesn’t mean it won’t go the other way, or behave in even more unpredictable ways. Past performance may not be repeated.
Taking the first opportunity that presents itself
At least compare a few options first.
Changing course at the slightest downturn
Remember that equity investment is for the longer term. You should carefully re-evaluate your objectives and reasons for investing before making a decision to dispose of your investment.
Investing more than you can afford
Calculate at the start how much you are going to invest and what you want to put into savings, and stick to it unless your circumstances change.
Taking a high-risk investment that you can’t afford to lose
Only speculate with money which you are prepared to lose.
Assuming stable, consistent income
Any income from an investment is not fixed and may fall.
Overlooking the impact of currency movements within the portfolio of the company
Understand where the underlying portfolio is invested.
Ignoring the effect of inflation
Inflation will affect the purchasing power of your returns. To maintain the real value of your returns, review from time to time how much you save or invest.
Thinking you can always sell at the price shown in financial publications
The price in financial publications may not be the price at which purchases and sales take place; it may be the mid-market price, buy price or selling price. The price you buy at is higher than mid-market and the price you sell at is lower than mid-market. The difference between the two prices is known as the spread and the less the demand or liquidity for the shares, the wider the spread. In some cases, the illiquidity or lack of demand makes the spread very wide and in exceptional cases some shares may be difficult to deal in at all in certain sizes.
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