Mistake 1: Panicking and selling
It’s completely normal to feel worried when your investments take a hit. But hitting the panic button and selling up in reaction to short-term dips is often a bad idea.
Our brains are wired to chase gains and avoid losses. But if left unchecked, this often leads to poor investment decisions. For instance, selling out when markets are tough means missing out on any potential rebound , which can be even stronger than before.
Sticking to your long-term plan is therefore key. A diversified portfolio can also help smooth out the bumps – and has been proven to help investors weather market storms. In simple terms, this means investing in a mix of shares and bonds, and/or investment funds from various industries and countries, to reduce your risk and capture market opportunities.
Mistake 2: Changing your risk tolerance
When markets are bumpy, it’s easy to get scared and want to change things.
But remember, your long-term goals are more important than any short-term ups and downs. Sticking to your original plan – based on your risk tolerances – can pay off over time.
Your risk tolerance is how comfortable you are with losing money on your investments and having the right resources available to absorb any losses. Some people are okay with taking bigger risks for the chance of higher returns, while others prefer to play it safer.
It's important to understand your correct risk level because it helps you make investment choices that fit your life and personality. Your level of comfort with risk can change over time and with your circumstances, but you shouldn’t let it be short-term market fluctuations that make you change your mind.
Mistake 3: Don’t cash out too quickly
Selling your investments when markets are down tends to lock in your losses. It also means missing out on any upswing.
So, keep your eye on the bigger picture. Resist the urge to check your investments constantly – don’t get caught up in the daily fluctuations.
And the longer you stay invested, the better your chances of seeing your money grow. Aim to hold on to your investments for at least five years, ideally longer.
Mistake 4: Don’t ignore inflation
Inflation can quietly chip away at the value of your money over time. It’s important to be aware of inflation, but don’t let it stress you out.
Diversifying your investments can help protect you from inflation. By spreading your money across different types of investments, you can balance out the impact of rising prices, as some investments tend to hold their value better than others when prices are going up.
Likewise, if you’re tempted to cash in your investments during market volatility, in favour of holding cash instead, ensure you understand the full picture. If the savings return on cash is lower than inflation, the purchasing power of your cash will fall.
Please note: This article is for general information purposes only. If you’re unsure about when to buy and sell investments, seek professional independent advice.
