DIY investment mistakes to avoid – lesson 7, 8 & 9

DIY investing might be tempting but be careful not to get caught up in something you don’t really understand for the fear of missing out, you could regret it and it could be very costly for you.

7  Diversification and spreading the risk

Putting all your eggs in one basket concentrates your gain as well as your loss.  By spreading the risk it creates opportunities, balance and some yin and yang!  Knowing what is likely to go up when something else is going down and being able to take advantage of this is very tricky, unless you know what you are doing. 

You can reduce the risk in your portfolio by holding a range of different types of investment classes.  Each different type of investment tends to perform well in certain market conditions and by broadening your portfolio’s exposure across a range of asset classes.  The fluctuations caused by most economic and financial events can be smoothed out. ⚖️

8  Tempted to buy based on past performance

Don’t fall into the buying past performance trap.  When looking to buy a new fund or share, it makes sense to look at past performance.  Past performance is no guarantee for future performance but knowing about economic cycles and staying diversified is how you prepare for future performance.

You need to understand how the funds or shares are going to perform in different economical situations and be comfortable with these situations.  This is not an easy thing to do when you have a full time job and a life to live.  So when I was introduced to model portfolios, where an expert does this for you and it’s very cost-effective, I was very happy.  I wondered why I hadn’t come across this before as it saved me a lot of time and money, so here I am sharing this with you.  You have to be careful that you pick one that matches your risk profile and ethical preference, but I really love them. 💕 

9  Attempting to time the market

Timing markets is very hard to get consistently right, it’s even hard for professionals, so my advice is – don’t try!  Instead, you should drip-feed your money in on a regular basis.  You should also do this when you are taking money out.  This way you have less regrets that you got the timing wrong and it removes the need to get the timing right, which you now know is difficult to do.  In buying into a fund or shares regularly, you are smoothing out the highs and lows in the price.  This is known as pound-cost averaging.  What’s important is the time that you are in the market, rather than you trying to time the market. 🕰️

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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