Five deadly sins for private investors

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All too often, we let emotion get the better of us when it comes to investing. Our judgement might be affected by greed and fear; we might be steered by sentiment or confounded by facts; or we might have swallowed a sales pitch from a mate in the pub.

It's easy to get sucked in, but we should never let emotion get in the way.

Here are five of the most common errors - mistakes I believe would be avoided if investors sought help from an investment professional.

FAILING TO PLAN

You'd be amazed at how few private investors have a plan beyond, 'uh, I'd just like to get a better return'. Many think all they need to do is simply buy a few stocks or funds in order to beat the market.

The trouble is, most don't have a level of return in mind, let alone how much risk they want to take. Most also fail to consider the sort of timeframe they're looking at.

But they need a strategic plan and they need to stick to it. You need a clear and realistic objective, as well as a sensible timeframe.

You also need to think about the level of risk you're prepared to take, and how you'll prepare your portfolio for volatility.

How a wealth manager can help

A wealth manager will act as a mentor, helping you devise and review your investment plan. But remember, investment is only one part of your financial picture.

FOLLOWING THE HERD

The problem with going it alone is that tendency to follow the herd. History is littered with investment bubbles, most recently the technology boom at the turn of the millennium.

We all find safety in numbers and it's human nature to do what others are doing. To avoid a bubble investors don't need to be completely contrarian, but they do need to be wary of any investment that has become fashionable.

How a wealth manager can help

A wealth manager will help you think rationally, as well as assessing underlying valuations and market trends. It is part of our job to have in-depth knowledge of the markets.

ALL EGGS IN ONE BASKET

Another common mistake made by DIY investors is to buy just a handful of companies, thereby putting all their eggs into one basket. In doing so, they are forgetting asset allocation and are not building a balanced portfolio.

To reduce risk, investors need to spread their investments. For example, in direct equities, it would be sensible to have 15 to 20 equities spread over a number of sectors.

But in that case you need to do your homework and really get to know these companies, which takes a considerable amount of time and effort.

How a wealth manager can help

A wealth manager will share the burden of research, ensuring you have a suitable spread of sectors and making sure you're disciplined in reviewing the balance of investments.

They will also make sure you have a decent spread of assets, across cash, bonds, property and alternative assets.

AFRAID TO TAKE PROFITS

Selling is as much a part of the investment process as buying. You would be surprised at the number of investors who hang onto their investments, even when they're making a loss.

Rather than being rational, emotion takes over. Instead, it pays to try and be objective about when to move on.

How a wealth manager can help

A wealth manager will make sure you rebalance your portfolio, which involves taking profits from your winners. It is part of our job to give you objective advice and be alert to the right times to hold or sell.

NOT TAKING ADVANTAGE OF TAX SHELTERS

Even if investors are disciplined, they often forget to look at tax-efficient ways of investing and don't maximise their tax efficiency - for example, they may overlook the inheritance tax relief that can be procured through investing in the Alternative Investment Market.

Investors also need to think about pensions and other assets, and about their estate planning.

How a wealth manager can help

A wealth manager will pick up on these complex issues and make sure that, from a tax perspective, your whole portfolio is working.


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