The rundown

• Diversify your investments to reduce risk.
• Don't try to time the market; instead, stay informed about market trends.
• Keep emotions out of your decisions by setting clear criteria to rule your investment decisions.
• Regularly rebalance your portfolio to maintain diversity.
• Have a solid investment plan that aligns with your goals and risk tolerance.

Mistake #1: Failure to diversify

You may be familiar with the saying, “don’t put all your eggs in one basket”. By investing solely in one company, asset class, country or industry/sector, you are placing your hard-earned money and portfolio at risk of negative returns, as one event, such as a global conflict, could negatively impact your portfolio’s returns.

Tip:

By spreading your investments across different companies, industries, and asset classes such as stocks and real estate, you can reduce the risk of negative returns on your investment portfolio. Learn more about diversifying your portfolio.

Mistake #2: Trying to time the market

We would all love to purchase our investments when prices are at their lows and sell when prices are at their peaks. Some investors may get the timing right one time but few, if any, can claim to do it consistently.

Tip: 

Stay up to date with market movements and current affairs that could influence the sharemarket.

Mistake #3: Letting your heart rule your head

Or, in other words, “don’t let your emotions guide your investment decisions.” 

Tip:

Having set criteria to assess your investments will reduce the chance of impulsive decisions. And these impulsive decisions can take over when the market is either soaring or slumping.

Mistake #4: Not rebalancing your portfolio

This mistake often combines mistakes 1 and 3 in practice. Investing too much money in too few industries or companies could lead to an unbalanced and undiversified portfolio. 

Tip:

At least once a year, assess your share portfolio to check whether it is diversified across sectors, companies and even countries. If your portfolio is heavily invested in a single sector, you could consider investing in another industry or even an ETF to spread your investments.

Mistake #5: Investing without having a plan

What are your investment goals? How much risk are you prepared to accept? What is your investment horizon? All these questions must be answered to ensure that you are headed in the right direction.

Tip:

Before you start investing, note down your investment goals – are you investing for the short term, or long term? Are you investing to receive another source of income, or to fund your retirement? Then, determine how much money you can invest weekly, fortnightly or monthly, and how much risk you’re willing to accept. Once you have a plan in place that you’re comfortable with, you can confidently begin your investing journey.