Investing can be an effective way to build up wealth. As we navigate the post-pandemic world, people are feeling more confident investing money, with Google recently seeing a massive 3,450% increase in searches for “best investments 2023.” More people are wanting to get into investing or expand their portfolio as seen by the 9 million people discussing investing and over 1.8 million people discussing “how to invest”. Knowing how to take care of your investments so they flourish is critical. The team at private and commercial banking firm Arbuthnot Latham have provided a helpful guide on the most common mistakes investors make and how you can avoid them. Emotional attachment to a losing position Before you invest, decide how much you are willing to lose, either as a percentage or in cash terms. This helps you decide based on logic rather than fear or emotion when to hold out the storm and when to cut your losses. Getting emotional about stocks is something we see often with clients when a position is inherited or gifted from older generations. Rather than hanging on, it may be a good time to diversify to obtain exposure to a varied range of industries and sectors. Concentrating on a few investments You have no doubt heard some version of the phrase: “Don’t put all your eggs into one basket.” The logic is sound. If you invest in 100 stocks and one goes to zero you lose 1%, but if you invest in 10 stocks and one goes to zero you lose 10%. Investing in different asset classes, geographies, and strategies, including a diversified portfolio of good companies can both protect and enhance capital over the long term through many economic and market cycles. Confusing luck with skill Just because you made money doesn’t mean it was a good investment. Maintain a sense of weariness around investments that can be volatile. Beware of overconfidence, both in terms of the quality of your information and in your ability to act on the information in a timely manner. A rising market lifts all ships. Assuming a stock with a low price is undervalued Share prices are not a reflection of the true value or opportunity in company. The company behind the share price is. Sometimes stocks just never bounce back. Not knowing your batting average Being wrong is normal. Getting it right 60% of the time is a good batting average and what is most important is looking at the overall historical performance to ensure on average your investing is right more often than not. Getting distracted by the social media circus It is easy to get caught up in the click-bait headlines, trending social media posts and viral stories, but it is not advisable to track performance too frequently. It can distract from the bigger picture and can be easy to get swayed by both good and bad news. Extending the recent past into the future and not acknowledging the potential for change Forces driving the market today can change rapidly. It is human nature to take the recent past and apply it to the future. Accepting things change rapidly and without warning will avoid you making costly errors. Finance Monthly. Investment 27
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