Home' Trinidad and Tobago Guardian : June 1st 2017 Contents 11. Not knowing the true performance of your investments
It is shocking how many people have no idea how their investments have perfor med. Even if they know the headline
result or how a couple of their stocks have done, they rarely know how they have performed in the context of their
portfolio. Even that is not enough; you have to relate the performance of your overall portfolio to your plan to
see if you are on track after accounting for costs and infation. Don’t neglect this! How else will you know how you are
12. Reacting to the media
There are plenty of 24-hour news channels that make money by showing "tradable" information. It would be foolish to
try to keep up. The key is to parse valuable information out of all the noise. Successful and seasoned investors gather
infor mation from several independent sources and conduct their own proprietary research and analysis. Using the
news as a sole source of investment analysis is a common investor mistake because by the time the infor mation has
become public, it has already been factored into market pricing.
13. Chasing yield
A high-yielding asset is a very seductive thing. Why wouldn’t you try to maximize the amount of money you get back?
Simple: Past returns are no indication of future performance and the highest yields carry the highest risks! Focus on the
whole picture; don’t get distracted while disregarding risk management.
14. Trying to be a market timing genius
Market timing is possible, but very, very, very hard. For people who are not well trained, trying to make a well-timed
call can be their undoing. An investor that was out of the market during the top 10 trading days for the S&P 500 Index
from 1993 to 2013 would have achieved a 5.4% annualized return instead of 9.2% by staying invested. This difference
suggests that investors are better off contributing consistently to their investment portfolio rather than trying to trade in
and out in an attempt to time the market.
15. Not doing due diligence
There are many databases in which you can check whether the people managing your money have the train-
ing, expe rience, and ethical standing to merit your trust. Why wouldn’t you check them? Ask for references and check
their work on the investments that they recommend. The worst case is that you trade an afternoon of effort for
sleeping better at night. The best case is that you avoid the next "Madoff " scheme. Any investor should be willing to
take that trade.
16. Working with the wrong adviser
An investment adviser should be your partner in achieving your investment goals. The ideal fnancial professional and
fnancial service provider not only has the ability to solve your problems but shares a similar philosophy about investing
and even life in general. The benefts of taking extra time to fnd the right adviser far outweigh the comfort of making
a quick decision.
17. Letting emotions get in the way
Investing brings up signifcant emotional issues that can impede decision making. Do you want to involve your spouse
in planning your fnances? What do you want to happen with your assets after you die? Don’t let the immensity of these
questions get in the way. A good adviser will be able to help you construct a plan that works no matter what the answers
to these questions are.
18. Forgetting about inflation
Most investors focus on nominal returns instead of real returns. This focus means looking at and comparing perfor mance
after fees and infation. Even if the economy is not in a massive infationary period, some costs will still rise! It is
important to remember that what you can buy with the assets you have is in many ways more important than their value
in dollar ter ms. Develop a discipline of focusing on what is really important: your returns after adjusting for rising costs.
19. Neglecting to start or continue
Individuals often fail to begin an investment program simply because they lack basic knowledge of where or how to
start. Likewise, periods of inactivity are frequently the result of lethargy or discouragement over previous investment
losses. Investment management is a discipline that is not overly complex, but requires continual effort and analysis in
order to be successful.
20. Not controlling what you can
People like to say that they can’t tell the future, but they neglect to mention that you can take action to shape it. You
can’t control what the market will bear, but you can save more money! Continually investing capital over time can have
as much infuence on wealth accumulation as the return on investment. It is the surest way to increase the probability
of reaching your fnancial goals.
© 2016 CFA Institute
For more information, please consult http://www.cfainstitute.org/investor/
The information contained in this piece is not intended to and does not provide legal, tax, or investment advice. It is
provided for informational and educational use only. Please consult a qualifed professional for consideration of your
Some of this content originally appeared in the article, “The 12 Most Common Mistakes Investors Make” (2008).
Reproduced with the permission of the CFA Institute
TIPS FOR AVOIDING THE TOP 20
COMMON INVESTMENT MISTAKES
by Robert Stammers, CFA, Director, Investor Education
When learning how to invest, it is important to learn from the best, but it also pays to learn from the worst. These top 10 most common mistakes have
been compiled to help investors know what to watch out for. If any of these mistakes sound familiar, it is likely time to meet with a financial adviser.
(Part 2 Nos. 11-20,
continued from BG dated
May 25th, 2017)
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