Investing is a powerful tool to grow your wealth. But mistakes, even small ones, can snowball and become costly in the long run. Are you making these 4 investing mistakes?
- Checking your investments every day
Unless you have nerves of steel or are a very experienced investor, it’s probably best not to check your investments or what the stock market is up to every single day. Because the markets are volatile, it can be unnecessarily stressful to see your investments go up and down with more plot twists and turns than an episode of Succession. So check in occasionally by all means, but don’t stay glued to the financial news.
- Not using tax-efficient investing accounts
In the UK we’re lucky to have a generous Individual Savings Account (ISA) allowance that helps us save and invest tax-efficiently. UK residents can pay £20,000 per tax year into a variety of accounts, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, or Lifetime ISAs. Lifetime ISAs also benefit from a 25% top up from the government. You can only put £4,000 into a LISA each tax year, so the maximum amount the government will add is £1,000. And this £4,000 LISA allowance is part of the total £20,000 allowance. So if you put the full £4,000 in a LISA, you have £16,000 of remaining allowance to add to a Cash ISA, Stocks and Shares ISA, or both. There are conditions associated with withdrawing money from a LISA, so check these carefully before contributing to one. Any interest earned or gains made when selling investments in these accounts is tax free forever.
- Not diversifying your investments
Are you picking a handful of individual stocks? Solely invested in British companies? Or all in on crypto? Then this might be something to revisit. Diversification is investing best practice. Often, when you hear of people losing all their money in the stock market, it’s usually down to them betting everything on only one stock. When you diversify across asset classes, industries, and geographical locations however, you minimise this risk. Because not all asset classes, industries, or economies go up (or down) at the same time, your investments will be kept on a more even keel rather than capsizing in the event that one company, industry, or region is hit. During the COVID-19 pandemic for example, if you held stocks only in aviation companies, you’d have been hit pretty hard. But if you owned shares in pharmaceutical companies, then that would have balanced things out for you.
- Trying to time the market
Are you sitting on a pile of cash just waiting for the ‘best time’ to invest? Not starting at all is possibly the worst mistake of all. Everyone, no matter how early they start investing, wishes they’d started investing sooner. Whether you prefer to invest an initial lump sum and then regular amounts or go for the little and often route of pound cost averaging, getting started is the most important first step. There’s a reason they say “time in the market beats timing the market.” The longer you’re invested, the more opportunity you have to ride out the volatility in the market and see your investments grow. Also, because interest compounds over time, you might not see very exciting gains in the beginning. Famous investor Warren Buffett – who is worth $124 billion in 2023 at the age of 93 – started investing at the age of 11. But 99% of his wealth was created after the age of 50. This goes to show the power of compounding, which is always amazing but is extremely powerful the earlier you start.
If you’re making any of these investing mistakes, there’s still time to fix them. Investing is a journey, and staying the course becomes easier when you have clear, long-term investing goals.
*With investing your capital is at risk. Your investments may go down as well as up, and you may get back less than the amount you invested.
