DIY investment mistakes to avoid – lesson 4, 5 & 6

The savings from DIY investing can be quite easily wiped out by basic human mistakes and having a professional financial best friend to work through this stuff with you is likely to result in a net gain and more restful nights.

4  Risk – Taking too much or not enough

Knowing how much risk to take is hard to assess on your own.  Most DIY portfolios have way too much risk.  I didn’t realise how much risk I had in my investments until I completed a risk profile questionnaire at Women’s Wealth and compared my existing investments against my actual risk profile.  You should also consider your capacity for loss ie, how would you feel if the value of your investments fell by 32%?  Do you know what your exposure is?  I was taking too much risk and I am still working on reducing the risk in my investments as I am emotionally tied to some of my earlier investments!  🥰 Emotion is something we cover in more detail in lesson 10.

Not taking enough risk can also be an issue, ie being too safe.  If you are saving for an event which is going to happen in the future, say 10-15 years plus, ie school fees, retirement, you can afford to take a little more risk than leaving your money in a savings account.  A better chance of growth can be achieved with a slightly higher level of risk; makes sense if you have time in your favour for any recovery needed from a fallen market.  Let me explain, the market investment risk range is typically 1-10.  Cash savings is a very low risk and would be a 1.   You don’t have to go in at the high level 8, 9 or 10 as these are very adventures.  A risk level 2, 3 or 4 would give you a better chance of growth than cash in a savings account.  The longer the time frame the higher step you can take.

Leaving your money in a savings account will also get eroded by inflation.  So in 10-15 years when you come to spend this money, you will not be able to put the same items in your shopping basket as you can today, your money will be worth less, so there will be fewer items. 🛒

5  Tinkering with your investment holdings

The only time you should tinker with your holdings is annually when you review your portfolio performance.  At this point you are tinkering to rebalance your portfolio so it continues to meet your goals and reduce risk.  Constantly tinkering and changing your portfolio should be avoided as it can get very expensive.  Every time you buy and sell a stock or fund you incur dealing charges and possibly stamp duty charges.  These charges will eat into your returns.  If you keep tinkering you will stray from your plan and not meet your goals. 💷

6  Assuming cheap stocks are undervalued

Share prices are not always a reflection of true value.  There is no such thing as a cheap stock. There is a reason why the stock price is where it is.  Share pricing is distorted by irrational ways in which others react to information.  You should always investigate why the price is where it is before you invest your money.  It could be the company recently announced a profit warning or bad news regarding management, production, services, or its market.  Sometimes it takes a long time to bounce back and in some cases, never.  So do your homework before you buy on the cheap! 📰

If you would also like to discuss any of these further, here is a link to my diary Discovery Call Meeting to book a free no obligation chat with me.  I look forward to chatting with you.

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