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Top 5 investing mistakes that are easy to avoid
Even seasoned investors make mistakes at times. But when you start investing, you’re prone to letting your emotions take over.
Investing is key to building wealth, but you could undermine your efforts if you make some common errors. Recent research from the Natixis Global Survey of Financial Professionals identified the eight biggest investment mistakes financial professionals believe are the costliest errors you can make. Here’s what they are.
1. Panic selling
A whopping 93% of financial professionals identified panic selling as a top investing mistake, and with good reason. When you see your investment account balance start to fall or the economy starts to look shaky, it’s hard not to make bad decisions based on the fear of losing everything. Unfortunately, selling when the going gets rough is a surefire recipe for disaster. It means you’ll always end up selling low and missing out on the recovery that almost inevitably follows any market correction.
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The good news is that this error is easy to avoid if you have a solid investment strategy. If you’re confident in your investments, you can step away from your portfolio during downturns to avoid the temptation to sell. Or, you can make the smart play and invest more money and take Warren Buffett’s advice to be greedy when others are fearful.
2. Trying to time the market
On the surface, aiming to buy stocks when share prices hit rock bottom and to sell when they’re at their peak seems like a good strategy. The problem is that most people can’t predict exactly when share prices will hit their optimum point. And missing even just a few good days in the market due to poor timing could leave you hundreds of thousands of dollars poorer.
That’s why it’s not surprising that 50% of financial professionals list market timing as a top mistake. This is also easy to avoid, though. Dollar cost averaging, or buying shares on a regular schedule over time, eliminates the need to determine the perfect moment to buy shares.
3. Failing to understand your risk tolerance
There’s generally an inverse relationship between risk and potential reward, where the riskier the investment, the greater the potential returns. Unfortunately, 45% of financial professionals indicate that a failure to understand risk tolerance is a top mistake investors make.
You need to make a calculated, informed choice about how much risk you’re willing to take in order to decide how much money to put into stocks (which are riskier but present an opportunity for higher returns), as well as whether to invest in index funds (the safer bet) or individual stocks (which provide a chance to beat the market).
Risk tolerance is something that should change over time. Before you start seriously investing, think about how comfortable you are taking chances with your money and let this guide your investing strategy.
4. Having unrealistic expectations of returns
It’s important to make reasonable projections about how much your investments will earn. If you expect a 20% average annual return, you may think you need to invest a lot less than if you expect 2% average annual returns.
Unfortunately, 43% of financial professionals indicate that unrealistic expectations of returns is a major mistake investors are making. To avoid this, look at the historical performance of investments you’re considering, and study the fundamentals of any stock you plan to buy to assess its realistic potential.
5. Taking too much risk in pursuit of yield
While many investors misunderstand their own risk tolerance, others take on too much risk and gamble with their futures. That’s why 25% of financial professionals identify taking on too much risk as a costly investment mistake.
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If you invest in high-risk investments or put too much of your money into the market, you stand the chance of facing outsized losses if things go wrong. Instead, make sure your asset allocation and risk exposure are appropriate to your age and objectives. If you’re saving for retirement, for example, subtract your age from 110 to determine what percent of your portfolio should be in the stock market.
6. Failing to recognize the euphoria of an up market
This is the opposite of panic selling, and 25% of financial professionals indicate it’s also a very costly error.
When investors get too excited that things seem on the upswing, this leads to asset values escalating without justification. You could easily end up buying in a bubble and getting stuck with a portfolio full of overvalued stocks. The good news, however, is that dollar cost averaging and a sound investment strategy focused on the fundamentals of each company can help you avoid this error too.
7. Focusing on cost rather than value
Far too many investors focus too much on share price at the expense of considering what shares are actually worth.
This often leads to an inaccurate belief that stocks under $5 are a “bargain,” even if the companies are unproven or haven’t published much financial information. It could also lead inexperienced investors to assume stocks with a high share price are worth their cost just because of their high price tag. These types of errors are likely why 19% of financial professionals identify a focus on cost rather than value as an expensive mistake.
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The reality is that a stock that costs $5,000 per share is a better value than one that costs $10 if the first is likely to double and the second will most likely lose half its value. The key is to look at the company’s past performance, leadership team, competitive advantage, and potential for growth when deciding which is a better buy.
8. Failing to consider the tax implications of investment choices
Finally, 9% of financial professionals indicate that a failure to consider the tax implications of their investments is a costly error people are making.
This can be a problem if, for example, investors miss out on the chance to take advantage of favorable long-term capital gains rates, or if they don’t engage in strategic tax-saving moves such as tax loss harvesting. Understanding the tax rules that apply to investment income is a good way to avoid this error.
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The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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India Stymies Investment From Hong Kong Amid China Border Row – BNN
(Bloomberg) — India is subjecting foreign investment proposals from Hong Kong at par with China as part of a new policy that makes approval mandatory for plans from countries that share a land border, a person with the knowledge of the matter said.
Nearly 140 investment proposals valued at over $1.75 billion, mostly from China and Hong Kong — China’s special administrative region — have been put on hold pending scrutiny, the person said asking not to be identified citing rules on speaking to the media.
Amid a border stand off with China, the Indian government tightened rules for foreign direct investment from all nations sharing a land border, making scrutiny mandatory for such investments — a restriction that was earlier applicable only to Pakistan and Bangladesh.
The delays may complicate deal-making and impact the flow of capital from private equity firms and hedge funds, which often include investors domiciled in China or Hong Kong. This may starve Indian companies of investment in the midst of the pandemic-induced economic contraction.
The curbs also apply when the beneficial owner of the proposed investment is situated in any of India’s neighbors. A government panel constituted to approve these proposals is yet to decide on the rules including on beneficial ownership.
The trade and industry ministry spokesman didn’t immediately answer a call made to his mobile phone.
READ MORE: China Gained Ground on India During Bloody Summer in Himalayas
Tensions between the two giant Asian economies have been escalating since May. Twenty Indian soldiers and an unknown number of Chinese troops were killed in clashes along the Himalayan frontier earlier this year.
The military crisis is the worst since the two sides fought a war in 1962. India responded by banning Chinese apps, tightening visa rules for Chinese nationals and imposing curbs on companies from nations sharing a land border from bidding for government contracts.
Earlier last month, Foreign Minister Subrahmanyam Jaishankar had told Bloomberg News that trade with China can’t carry on in business-as-usual mode as long as there are unresolved issues along the border — a disputed 3,488-kilometer (2,167-mile) stretch known as the Line of Actual Control.
©2020 Bloomberg L.P.
Billionaire Bezos Backs Start-Up in Maiden Africa Investment – BNN
(Bloomberg) — Jeff Bezos agreed to back Africa-focused financial technology company, Chipper Cash, making it his first start-up investment on the continent.
The world’s richest man’s personal venture capital fund, Bezos Expeditions, supported the Series B funding led by Ribbit Capital, which raised $30 million for the San Fransisco-based company.
“Jeff Bezo’s backing of Chipper Cash will widen the company’s product suite through inclusion of more business payment solutions, crypto-currency trading options, and investment services,” the company said in an emailed statement.
Chipper Cash enables instant cross-border mobile money transfers in Africa and abroad and will use the funds for expansion into countries it will announce in 2021. The company has 3 million users on its platform across Ghana, Uganda, Kenya, Tanzania, Rwanda, Nigeria and South Africa, and processes an average of 80,000 transactions daily, according to the statement.
“We are responding to the demand from customers on our P2P platform who also have business enterprises,” Chipper Cash Chief Executive Officer Ham Serunjogi said in the statement.
Read more: Visa Partners With Payments Startup Chipper in African Expansion
©2020 Bloomberg L.P.
Dot Investing Launches Digital Platform Allowing Individuals to Access Investment Opportunities Usually Reserved for Institutions – Business Wire
LONDON–(BUSINESS WIRE)–Dot Investing, a fintech startup, has launched an online investment platform that allows individual investors to invest in top private and alternative asset funds, including private equity, VC and hedge funds. Users are able to invest from £100,000 into opportunities that historically had far greater minimum investment requirements. The team behind the FCA-regulated startup want to democratise access to investments that until now have only been easily accessed by institutions.
Falling interest rates and volatile markets are driving demand from individual investors for access to top-tier private assets and alternative funds. Dot Investing is one of a small number of next generation investment platforms that provide the access and tools required to meet this demand. On the other side of the equation, the fintech startup opens the door for fund managers to a pool of capital worth trillions of pounds.
Each investment opportunity listed on the platform has passed Dot Investing’s proprietary due diligence process, combining technology and in-house expertise. Users must meet with qualifying investor criteria and make their own decisions on where to invest funds, however they do so with the knowledge that each opportunity presented has been vetted by experts. The majority of investment opportunities will come from top-tier private equity and alternative asset funds, users of Dot Investing will also enjoy regular access to ESG and impact investing funds.
Dot Investing was founded in London by a team with broad experience from a range of financial institutions including Blackrock, Barclays and JP Morgan.
Kinson Lo, founder and CEO of Dot Investing said, “We believe our technology can empower investors to build more diverse, resilient and better performing investment portfolios. Our digital platform opens access to investments that for too long have been the preserve of institutions. The combination of expertise and technology we provide arms investors with the insights to invest like a sophisticated institution.”
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