Top mistakes and suggested solutions from the CFA (Chartered Financial Analyst) Institute may help you avoid repeating history!
By Heather Holden, PhD, Wealth Advisor, ScotiaMcLeod
Have you ever made one of the following mistakes? Could it be that you continue to repeat your mistakes? The following summary of top mistakes and suggested solutions from the CFA (Chartered Financial Analyst) Institute may help you avoid repeating history!
1. You have no strategy
If this is you, here’s a good start: pinpoint your risk tolerance in plain language and commit to a time frame for how long you will invest your money before you will need it.
2. You buy high, sell low
Determine at the outset how you’re going to decide when to sell (consider selling after you’ve made a certain percent return, for example). We all know it can be really tough to wait for the recovery to recoup losses after a stock goes way down in price, and maybe even harder to sell when a stock’s price is high, but this discipline will keep your investments in line with your goals.
3. You have rapid turnover of investments
Be patient. Too-frequent trading reinforces a frantic focus on short-term stock performance over long-term fundamentals.
4. You act on tips
Ignore the trends. If you’ve heard the hot tip, chances are an awful lot of people heard it before you and have already acted.
5. You don’t know the fees you pay
Read the small print. Know how the mutual fund company compensates the advisor that recommended the purchase (called a trailer), for example.
6. You’re overly focused on tax implications
Maintain perspective. Be aware of your tax liabilities and make strategic decisions regarding asset allocation, but make good investment decisions your top priority. To hold on to investments to avoid capital gains tax, for example, could lead to poor investing decisions and lost opportunities.
7. You have unrealistic expectations
Prepare for the worst. Investors willing to take risks in pursuit of above-average returns are those who will most often find themselves disappointed by sudden market downturns. Expect consistent returns averaged out over the long term and focus on reasonable returns on fundamentally sound investments.
8. You neglect your portfolio
Be consistent. Don’t let discouraging markets and uncertainty keep you from being proactive. Set up a regular contribution program and schedule regular check-ups with your advisor. This will help you stay focused on your goals and enable you to fix problems before they derail a solid investment strategy.
9. You don’t reflect on your risk tolerance
Know yourself. Knowing how much money you can stand to lose is a difficult thing to consider. Understanding your limits is the first step in assessing how actively and aggressively you want to get involved in investing. Consider thinking about risk as degree of uncertainty.
