Dear friend,

Investing is like all long journeys, you simply can’t go anywhere without careful planning and a map. It’s simple really. If you don’t know where you’re going, you’re sure to get lost along the way. If you don’t set specific guidelines and targets, your investments are set to fail.

The top 3 investment mistakes and how to avoid them

Investing mistake #1: Don’t put all your eggs in one basket
Investment guru Warren Buffett once said: “Wide diversification is only required when investors don’t understand what they are doing”. Although the merits of diversifying your portfolio can never be stressed too much, Buffet has a point! Like everything else in life, diversification can be taken too far.

But don’t just trust my word; let’s look at what the numbers say! Let’s say you invest R12,000 in 12 different shares equally this means you have a R1,000 coverage on each company in your portfolio. Splitting the same amount between two or three different shares, on the other hand, won’t only increase your exposure to risk, but also your exposure to reward. And with risk and reward come big profits!

From this example it’s easy to see that spreading your investments too thinly will mean tiny profits. In addition, don’t forget to take your broker’s fees into account. Over trading and over diversification may eradicate any profit you make from your investments.

Investing mistake #2: Clock watching
One thing to remember is you’re an investor NOT a trader. This means you’re in it for the long-term! Set a time horizon and always keep it in mind! How long you invest will be directly determined by your investment goals.

If you’re looking to make a quick buck (investing for a short period of time), trading is for you. Investors, those who are looking to build long-term wealth, on the other hand, will look to invest in shares, equities, fixed income funds, etc. instead. Remember, the longer you hold onto your investment, the greater chance you have of making fabulous returns!

Investing mistake #3: Don’t overreact
Panic – the most dangerous feeling to react to – is an emotion heavily steeped in fear! Bumps in the road are unavoidable! You’ve taken the time to research your company well so stick with it! And chances are you’ve chosen a winner. But, if you run when the first breeze starts wafting, then you’ll never know! As Nathan Rothschild, one of the founders of the international Rothschild banking dynasty, once said: “buy when blood is running in the street.”

If you’ve done your homework and know you’ve picked a winner, market volatility can be the perfect opening for doubling your exposure to the share… And at a cheaper price too! That said, it’s imperative to periodically reassess your shares, since the ultimate secret to success is dumping the losers and keeping the winners.

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8 ways to correct your investment errors – before it’s too late...

Okay, so now that you know what to avoid, here are a few helpful tips for keeping your investment on track:

*** Do your homework,
*** Get the right mix of asset classes,
*** Diversify your portfolio,
*** Have a clear idea of your investment timeframe,
*** Understand what your future financial requirements are,
*** Know what type of investor you are (long-term, short-term or a trader)
*** Periodically check your portfolio,
*** And always keep your goal in sight!

If you stick to these simple, but effective, rules and avoid making these common, costly mistakes, your investment journey should be pretty smooth!

Remember, the great investors aren’t only consistent in their thought process, they’re savvy enough to keep double checking themselves to ensure they’re not making the basic mistakes! Are you?

In the name of happiness,

Your Insider

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