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18 April 2023 11h20
Source: Banco Carregosa

8 investor mistakes to avoid at all costs

8 investor mistakes to avoid at all costs

 

All investors make mistakes, but some can be easily avoided if they are recognised and identified. If you are thinking about investing, discover the 8 most common mistakes made by investors and take a more assertive approach to managing your wealth.  

 

 

1. Investment portfolio not sufficiently diversified  

 

A healthy investment portfolio has always been one that is diversified. Being over-exposed to a particular company or asset is risky when the market moves in the opposite direction. On the other hand, diversifying the portfolio across different sectors or asset classes is essential to maintain a good overall performance, even if some of the investments do not deliver the expected return.   

 

One of the best ways to diversify your investments is to choose investment funds with exposure to different asset classes or sectors, to trade equities from different geographies and sectors, or to choose asset management strategies that provide this exposure, while delegating the management to professionals. Diversify your exposure and make it a rule not to allocate a high percentage of your assets to any single investment in order to limit your exposure to risk.  

 

 

2. Taking emotional decisions

 

Emotions and investing do not go together. However, this can be a challenge, as there are always significant emotional issues involved. On the one hand, emotions can cripple investment decisions and, on the other hand, they can create a "blind" attachment to a particular company, asset or product, leading the investor to continue allocating capital even when the scenario is no longer favourable.  

 

The first step to avoiding this mistake is to identify your emotions, to recognise they are natural, and to work on neutralising them. Relying on an experienced adviser is essential to get an outside, neutral and informed perspective on the health of your portfolio. The Banco Carregosa team can help you create a rational and robust plan to protect and capitalise on your investments.   

 

 

3. Investing for the short-term  

 

Enthusiasm can lead some investors to deploy capital with an excessive focus on short-term returns. However, the biggest mistake investors make is to exit the market before establishing a solid financial footing.  

 

A focus on the short term can be detrimental in both positive and negative periods for investments. When the market is rising, a focus on the short term can lead some to be overly optimistic. It's easy to think that if you don’t step up your investment, you’re missing out on opportunities – something that social pressure tends to reinforce. But it can be a trap, as these periods of strong expansion can be followed by periods of slowdown or even market correction.  

 

Again, the short-term focus comes into play. As prices continue to fall, investors become alarmed and try to sell, often before the market has time to recover. A few weeks or months later, asset start to recover – and the cycle begins again. 

 

Thus, focusing on the short term without expert monitoring can lead investors to make emotional decisions based on the latest market trends. The result can be a loss of opportunities for capital appreciation that may be available after a few months of consistent strategy.  

 

 

4. Lack of clear investment objectives 

 

Of course, emotions should be kept out of investment decisions, but one’s life goals are important an important factor to take into account. Do you want to retire early with an investment that pays you regular dividends? Are you investing to build a legacy for the next generation? Do you have aggressive valuation targets and are looking to outperform the market and benchmarks?  

 

In order to build a long-term strategy, the portfolio composition must be in line with each investor’s objectives, within the limits of the risk they are prepared to take, and in line with the dynamics of position monitoring. Relying on the specialised support of an experienced manager is fundamental to organising a portfolio that is compatible with the investor’s profile.

 

 

5. Chasing trends  

 

Chasing trends is another common mistake made by investors. Often investments are backed simply because they seem to be getting noticed, or because someone announces that a particular asset is having a "win-win” success. 

 

The advice is simple: don’t take investment advice from people who don’t know your financial situation. Do your own due diligence, cut through through the noise of information to analyse its true value, and research from multiple independent sources. It is also essential to have the support provided by experts with solid experience in the investment market, such as those working at Banco Carregosa.   

 

 

6. Nurturing unrealistic expectations

 

Most investors would consider an average annual return of 10% or more to be a good return from investing in the stock market over the long term. However, one need only look at the annual returns of some of the world's major indices to see that this expectation has been exceeded in some years and largely unjustified in others.

 

S&P 500 PERFORMANCE 

 

Source: Motley Fool  

 

In some years, such as 2018, expecting a 10% return would be dangerous and could lead to rash decisions. In these cases, the best strategy might be to "invest and forget". This will give you peace of mind and allow you to wait for the returns of the following years, such as those from 2019 onwards. Not in the sense of abandoning your portfolio, but in the sense of taking a slow and steady approach to the long-term growth of your portfolio. Bottom line: don't focus on immediate returns; focus on where you could be in a few years' time.  

 

 

7. Negotiating too much and too often  

 

Constantly changing investment strategies can reduce returns and lead to uncontrolled risks. It is important to stick to a consistent strategy and not react to the rising and falling markets. 

 

So, if you have the impulse to react, use it to deepen your knowledge of the assets you already have in your portfolio. By working closely with an expert, you are more likely to have a sound and consistent strategy for the long term.   

 

 

8. Not talking to experts 

 

The best way to avoid making investment mistakes and feel reassured is to work closely with a trusted expert. Just as an athlete needs a coach, an investor needs an adviser who can guide them on how to manage their capital in line with their goals and risk profile. 

 

You should therefore invest with the help of a professional who will analyse your financial situation and draw up a plan for you to achieve your goals. In addition, your portfolio will be actively and continuously monitored, allowing you to make prudent decisions.    

 

 

Banco Carregosa, managing investments since 1833  

 

If any of these investor mistakes sound familiar to you, it's probably time to find a financial adviser. Investing is an important tool for increasing the value of your assets and should therefore be done in a professional, guided and safe way. The Banco Carregosa team is here to help you define a personalised investment strategy. Contact us