The best investment tips if you want to avoid financial stress

Written by The ReReport
As seen in the Source link, written by on 2019-03-12 13:41:59

Every investor stresses about the performance of their portfolio. What’s performing, what’s not, do any changes need to be made?

But in many instances, it’s not the individual investments that are the problem … it’s the investors themselves whose behaviour sabotages their portfolio.

The classic investment saboteur makes these six mistakes.

1. Their portfolio and investment strategy doesn’t reflect their risk profile.

This is the number one cause of investment stress and can lead to emotional kneejerk decisions when investment performance doesn’t go to plan. Every investor must have a strategy for their portfolio which matches not only their long term goals for building wealth but also their tolerance for risk.

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That strategy should be developed in consultation with a professional adviser, be written down and reviewed regularly. It should reflect the needs of the individual investor and form the blueprint of any decision making.

It should also reflect the investor’s appetite for risk, both emotional and stage of life. A cautious investor with a high-risk portfolio of investments is a recipe for disaster and likely lead to panic, rather than objective, based decisions if things go awry.

2. Asset allocation isn’t reviewed at least annually.

Investment markets and individual assets are constantly moving in cycles … they rarely stagnate for any length of time. While a “set and forget” portfolio would be an ideal outcome, it just doesn’t happen.

media_cameraDon’t let some simple mistakes crash your investment plans. Illustration: John Tiedemann

A regular review of the balance of the portfolio is needed to ensure it’s still meeting the objectives of the investor and that performance isn’t skewing it in a different direction. An important part of that allocation is balance across asset classes and just individual investments.

Most Australians, for example, don’t count their home as part of their overall property exposure which means there is a general imbalance toward bricks and mortar and being underweight equities.

It’s also a good discipline to help encourage taking profits on good performers and cutting the losses of poor performers. Plus it should be part of a tax strategy to manage potential capital gains and losses.

3. They excessively churn investments

Professional investors can trade investments on a minute-by-minute basis as they take advantage of every price movement. It’s high pressure, not for the faint hearted and is based on enormous skill and expertise.

For the rest of us mere mortals, we have other careers and interests so our investing tends to be more conservative and passive by comparison, as it should be.

media_cameraInvesting has some dangerous traps for the unwary.

The danger for investors can be a middle ground where they don’t have the knowledge of a professional, trade their portfolio excessively in reaction to the constant stream of data and news and get lost in a frenzy of activity.

Excessive trading can trigger unknowing tax consequences, run the risk of poor record keeping and increase administration fees. Each trade has to have a purpose with the aim of fulfilling the strategy and goals of the portfolio.

4. Bad record keeping

The pressure is on all investors, and their portfolios, to keep accurate records of all investments. It’s a demand of the Tax Office and also of the regulators and auditors of self managed superannuation funds. Yet good record keeping is still the most lethal saboteur of portfolios.

Given the access and low cost of portfolio management software, there really is no excuse not to be on top of administration. Most online trading platforms offer management tools as part of their resource hub for clients.

The cost of poor record keeping can be enormous. Fees and penalties from the ATO and regulators for incorrect calculations or late lodgement of notices can be significant, not to mention convictions for more serious misdemeanours.

5. They surrender rather than delegate responsibility to others

It’s always your money. Yes, working with professional advisers to build and monitor the best investment portfolio for you as an individual is a good strategy for success. Just don’t take it to the extreme.

You must always make the final decision on not only the strategy and makeup of the portfolio, but also on any changes that may be made.

If you don’t understand, or disagree, with why an adviser is making an adjustment, ask for further explanation. If you still don’t understand, then you’re probably with the wrong adviser and need to change.

Trusted advisers can have a powerful impact on your portfolio and your stress levels when investing. But, like every profession, there are good and bad advisers. Identifying a bad adviser and making a decision to shift to someone else can be a key ingredient of investment success.

6. They are investment know-alls

There is a difference to being confident in decision making and being arrogant and ignoring advice or relevant information.

It’s a responsibility of all investors to keep up to date with the latest economic and investment information relevant to your decision making. Monitoring the overall investment environment, studying information sent to you from individual investments and assessing competing investment options are the fundamental foundation of investing.

An inquisitive, informed, enthusiastic and patient investor thirsty for knowledge is a powerful advantage.

Originally published as How to avoid investment stress