What are the top investment mistakes made by HNW investors?
The number one investment mistake made by high net worth investors, before they sought financial advice, was a failure to properly diversify their portfolios, according to our latest poll.
A majority 27 per cent of those polled cited a failure to properly diversify their portfolios was their biggest error. Other mistakes mentioned were not having started to invest earlier (23 per cent); focusing on the short-term (20 per cent); being emotional over investments (15 per cent); and not having kept enough cash reserves (8 per cent). 7 per cent did not know or respond.
Naturally, all investors, and I include myself in this, have made investment blunders, which turn out to be extremely regrettable as they could easily have been avoided.
As such, it is recognised worldwide that seeking specialist, independent financial advice allows investors to circumvent some of the most common mistakes, which have been highlighted in this recent poll.
Indeed, such talk of mistakes could make investing sound like a dangerous business. In fact, not investing is likely to be more dangerous. The majority of the world’s richest individuals are steadfast investors.
The important factor to consider when investing is to take proper advice, and, of course, learn from others’ past mistakes. This is the main reason why we carried out this survey.
Consequently, it is crucial that your portfolio is suitably diversified. It is one of the fundamental aspects of investing. Even so, it can be shocking how many people don’t do this.
A well-diversified portfolio, across geographical regions, asset classes and sectors means investors will be in a far superior position to mitigate risks and make the most of significant opportunities.
In addition, another mistake is focusing on short-term investing too much. This can be laden with risk, compared to investing over the longer term.
Key disadvantages of a short-term outlook are that investors could end up selling a quality investment ahead of time, due to concentrating too much on short-term valuations. Conversely, they could sell an investment too soon should it drop in value, meaning investors could lose out on potential steady growth over a longer period, coupled with increasing returns.
Furthermore, investing in equities is seen worldwide as one of the primary ways to accumulate wealth over the long-term. Mainly due to the fact that stock market performance is relatively predictable over a long period – they typically go up. Therefore, those who delay investing, could miss out on long-term benefits.
Of course, although decision-making founded on emotion and loyalty are commendable attributes in most areas of life – they aren’t in relation to investing. Making investment decisions based on emotions, perhaps fear or greed, or the longing to follow the crowd, could be catastrophic.
Lastly, it is essential to ‘keep some powder dry’. This enables investors to have cash at the ready in order to make the most of an investment trend or opportunity should it arise.