Independent financial consultancy deVere Group recently conducted a survey among their millionaire clients. The Group asked 880 clients what their number one investment mistake was, and then published the top five results.
Moneyweb’s economics columnist Felicity Duncan delves into these and elaborates on how you can avoid them.
Mistake #1: Failing to adequately diversify
According to deVere Group, 23% of their high-net-worth clients said that their number one investment mistake was failing to diversify their investment holdings. Diversification is vital to building a successful investment portfolio because by diversifying into different asset classes and different geographic regions, you balance your risks.
Mistake # 2: Investing without a plan
Fully 22% of deVere Groups clients said that their main mistake was investing without a plan. This seems like a no-brainer, but if rich folks are doing it, we’re probably doing it too. A plan is crucial to investment success; if you don’t know where you’re going, how will you get there?
Mistake # 3: Making emotional decisions
It’s so easy to do what 20% of deVere Group’s clients report doing: allowing your emotions to dictate your investment decisions. Greed and fear are major drivers of investment behaviour, and it’s a very wise investor who can look beyond his or her emotional urges to make rational decisions.
Mistake # 4: Failing to regularly review your portfolio
Sixteen percent of deVere Group’s respondents listed failing to review their portfolio as their top mistake. As we’ve already discussed, regular portfolio review and rebalancing is a crucial part of good investment behaviour. Luckily, this is easy to avoid.
Mistake # 5: Focusing too much on the history of an investment’s returns
This is a classic investment mistake, and one that 14% of deVere Group’s rich clients listed as their top mistake. We all know, intellectually, that past performance is no predictor of future performance. But when we analyse different investment opportunities, we still tend to spend a lot of time looking at historical performance charts and imagining that we will earn the same returns.