You might see the Halloween season as the perfect opportunity to enjoy some horror films, dress up in scary costumes, and carve spooky pumpkins with your family.
Yet, one area where you won’t want any frightening surprises is your financial plan. Unfortunately, when creating an investment portfolio there are some simple mistakes that could make achieving your financial goals a nightmare.
Read on to learn three terrifying investment mistakes to avoid this Halloween.
1. Letting fear and panic guide your decisions
Halloween is a time for scares, but it’s important that you don’t let fear guide your decisions when investing.
In today’s media climate, this can be difficult because you may be exposed to lots of “noise” from the news, social media, or other investors giving their advice. When you hear news of current events that could affect markets, or warnings from so-called experts about an “impending crash”, it’s easy to panic.
You might be especially concerned during a period of volatility when you see the value of your portfolio fall. If you let fear and panic take over, you might be tempted to sell your investments to avoid further losses.
However, this may not be the most sensible course of action because markets typically bounce back, and you could miss out on further growth in the future if you sell prematurely.
For example, the 2008 financial crisis caused market volatility around the globe. Indeed, according to the London Stock Exchange (LSE), the FTSE 100 fell by more than 40% between April 2007 and February 2009.
If you held investments during this period, you may have seen significant short-term losses, and you likely would’ve been concerned.
Yet, markets recovered relatively quickly and in the 10-year period between April 2008 and April 2018, the FTSE 100 grew by 15.92%.
If you had panicked and sold your investments after the initial downturn, you would have missed out on this growth. Conversely, if you held your investments over a longer period, you would have generated positive returns, despite the short-term fall in the value of your portfolio.
That’s why it’s important to remain calm during a market upset and avoid letting fear guide your decisions.
2. Failing to diversify your portfolio
Failing to adequately diversify your portfolio is another potentially terrifying mistake you could make when investing.
It may be particularly tempting to invest heavily in popular stocks such as the “Magnificent Seven” – a group of high-performing tech stocks that make up a significant portion of the US market. In the past few years, these companies have seen significant growth and if you invested most of your wealth in them, you likely would have generated notable returns.
However, you can’t tell what the future may hold and if the tech industry suddenly experienced a period of volatility, you could get quite a fright when the overall value of your portfolio falls.
That’s why it’s important to diversify and spread your wealth across different investment types, geographical regions, and industries.
When you diversify, gains from elsewhere could help you offset losses when certain investments fall in value. Additionally, investing widely could give you more opportunities for growth from emerging markets in the future.
If you’re concerned that your portfolio isn’t adequately diversified, we can help you make the necessary adjustments and manage the level of risk you adopt.
3. Trying to “time the market”
In the past, markets have typically grown in the long term. So, if you invest your wealth and leave it, you can normally ride out any short-term fluctuations. This means, over time, you could generate the returns you need to achieve your goals.
Unfortunately, some investors take a short-term view and instead try to increase their returns by “timing the market” – attempting to invest in certain stocks when prices fall and sell when values increase.
For example, during a period of volatility, you might predict that your portfolio is likely to fall in value significantly, so decide to sell now before this happens.
Alternatively, you may attempt to guess when markets will reach their bottom, so you can invest heavily and benefit from significant growth during a period of recovery.
However, you can’t see the future. As a result, your attempts to time the market could fail, meaning that you prematurely cash out investments. Additionally, if you wait for the “right” time to buy into the market, you could be missing opportunities for growth.
This is because, while you might avoid losses on days when the markets perform badly, you could also miss out on growth when stocks perform well.
For example, figures from the Visual Capitalist show that if you had $10,000 invested in the S&P 500 every day between January 2003 and December 2022, your total investment would be worth $64,844 by the end of this time frame.
Yet, if you missed the 10 best-performing days, your total investment would fall to $29,708. Missing the 20 best days would leave you with only $17,826.
That’s why it may be beneficial to be patient and simply leave your wealth invested in the long term instead of trying to time the market.
Get in touch
We can help you manage your investment portfolio and avoid these terrifying mistakes. Our support could be especially valuable when navigating the expected market volatility as a result of the US elections.
Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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