HOW TO AVOID THE BIGGEST INVESTMENT MISTAKES
Get smart from the bad experience of others and avoid the following investment mistakes.
Mistake 1: The art of procrastination
Prepare your strategy and get started. You can open a high-interest bank account, purchase a parcel of shares, or buy units in a managed fund. You can salary sacrifice to your superannuation fund, or even buy an investment property with as little as a 5% deposit. We strongly recommend you see a financial planner for unbiased investment advice.
Mistake 2: Lack of diversification
A common mistake by novice investors is not spreading your risk over a number of investments and asset classes which will protect you from devastating losses.
Mistake 3: No investment strategy
The surest way to accumulate wealth is to build a framework for making investment decisions.
Mistake 4: Investing in assets you don't understand
A common mistake for the older generation is not avoiding any investments where you don't understand:
- what the business is you're investing in
- how it operates
- how its success is going to translate into profits and eventual dividends or capital gains for you
Mistake 5: Believing the guy in the pub
Chinese whispers can turn the original investment tip into a very different message by the time you hear about it. What you hear may have been great for that original investor but it will not necessarily have the same effect for your own specific circumstances.
Mistake 6: Ignoring super
For most of us, superannuation is the most tax-effective investment vehicle to accumulate wealth. The earlier you start accumulating super, the less you will have to contribute to it over time, due to compound interest.
Any earnings are only taxed at 15% compared to investing outside the super fund you would pay tax at your marginal tax rate which can be as high as 46.5%. As an employee, you can make before-tax contributions (salary sacrifice), which can reduce your tax bill. If you make after-tax contributions, you may be eligible for tax free super contributions from the Federal Government known as co-contributions. When you retire the Government rewards you with tax-free income if you take your super benefits after the age of 60.
Mistake 7: Picking last year's winners
The best time to buy anything is yesterday. Don't panic about missing opportunities, there will always be opportunities, so continue to do your reasearch.
Mistake 8: Assuming you're an expert in everything
Don't just follow your mate's investment strategy because your circumstances, your goals, your risk tolerance, your income, and your expenses will be different.
Due to the size of the market, investment experts specialise in certain areas such as international shares, small companies, and the bond market to name a few. Financial advisers access research from many of these specialists before giving clients advice on specific investments. We strongly recommend you seek the services of a financial adviser to guide you on your investment and wealth creation journey.