Top Three Mistakes Made by New Investors
Three mistakes commonly made by new investors, could be avoided by making some simple adjustments, says Sharon Whitelocke, Deputy General Manager, JN Fund Managers Limited.
To make better decisions, Mrs. Whitelocke said, investors should approach their financial plans with the same seriousness that they would other important issues in life. This means they have to clarify their goals; gain an understanding of the importance of time; and ensure that they clearly understand the nature of their investments.
Set Clear Goals
“The single biggest mistake is to start investing without fully and clearly conceptualizing what you want to achieve,” she pointed out. “This first step in investment will be the basis of developing a strategy for achieving those objectives.”
Mrs. Whitelocke advises, the strategy will be informed by one’s risk tolerance; time horizon; the amount of funds you have to invest; at what intervals you will be adding to the investment and how much. This, as an investment strategy, also requires an action plan, which addresses how the investment will be implemented and monitored. This structured plan should guide all investment decisions, because, “Without a plan, you may find that where you have reached is somewhere you would rather not be.”
Start Saving Early
In regard to the second most common mistake investors make, she said that most people don’t realise the importance of starting to save soon after they begin working.
“Saving underpins investment, as it allows the saver to acquire the resources to begin investing. To achieve big savings goals, you should start saving early,” she said. “It offers you the ability to have your money work for you for longer.”
She explained that interest is added to the principal of a deposit or loan through the process of compounding, so that the interest also begins to earn interest.
Know Your Investments
“Access to information is only valuable if it is used,” Ms Whitelocke advised. “The investor will receive contract notes and portfolio updates to indicate what they have acquired; when it is acquired; the price at acquisition; and the latest valuation.”
Such information are the basic keys for the investor to understand the nature of what they have in their portfolio, she explained, adding that one particularly important issuewhich can be determined from this is whether, “the risk associated with the investmentis in line with your own risk appetite.”
Speaking about the fluctuations in the equities markets, for example, Mrs. Whitelocke pointed out that only investors who “have the stomach to get through an extended ‘bear’ market in equities,” should choose such investments.