IT’S an uncertain time to start investing, with both house prices and share markets looking shaky.
However, most investment experts will tell you the best time to get started is as soon as you can, because time in the market will usually trump any efforts to try and pick the best time to enter.
You don’t need to commit a fortune. Starting small is often a good idea for beginner investors, as is seeking expert advice and learning how to avoid the mistakes that newbies often make.
Here are five mistakes to watch out for.
Harvest Lane Asset Management managing director Luke Cummings said an investor fortunate to have an early win could liken the share market to “easy money”.
“Its’ very easy to get carried away by the temptation of going for the lotto-size winning trade, but it’s more likely that this type of investment will end in the destruction of your account than it will with you retiring early,” he said.
“The saying ‘slow and steady wins the race’ is a very appropriate one to keep in mind.”
2 INVESTING MORE THAN YOU’RE WILLING TO LOSE
All investments involve risk, so never pump in more money than you would be comfortable losing — or at least leaving in a loss-making investment for several years until it recovers.
Educating yourself about risk, and the benefits of diversifying your money across different types of assets, is important. If the thought of losing a few hundred or few thousand dollars stops you from sleeping, perhaps investing in shares, property and other high-growth assets is not for you.
3 FEAR OF FEES
Nobody wants to spend a fortune on fees, but if the performance you are getting from an investment adviser or manager more than offsets the cost, it’s worth paying a little extra.
Mr Cummings said fees relative to performance were very important. “You can’t properly assess one investment option against another without being aware of both fees and performance,” he said.
4 FOLLOWING THE HERD
PM Capital founder and chief investment officer Paul Moore said many investors tended to follow the crowd, even though the crowd was always wrong.
“The best investment opportunities will find few who are interested, many who are dismissive and some who will even ridicule,” he said.
“If you want to be a successful investor you have got to be doing something different.”
5 KNEE-JERK REACTIONS
With higher growth comes higher risk, and investments will always bounce up and down in value. They key is to look beyond this volatility and invest for the long term.
“People get so fixated with what’s happening that they forget that most of the time it’s temporary,” Mr Moore said.
“You have just got to be patient. But people start thinking that’s the way it’s always going to be.”
Originally published as Five deadly traps for new investors