How to Identify and Avoid Common Investing Mistakes

01 September 2023

For anyone keen to grow their wealth and achieve financial independence, investing is a crucial vehicle. Nevertheless, it is not without its own set of challenges. Investing mistakes, often borne out of limited knowledge, can occur, consequently draining valuable time and resources. Recognising and avoiding these common errors can help you maximise your returns and manage risks effectively. 

1. Not diversifying your portfolio

The old adage "don't put all your eggs in one basket" rings especially true in the investment world. Concentrating too much capital in a single investment can expose you to undue risk, as the asset's underperformance could adversely impact your entire portfolio. Diversification is a risk management strategy that mixes a set of investments within a portfolio. The rationale being that a portfolio of different kinds of investments will, on average, improve the risk-reward ratio than any individual investment found within the portfolio.

In terms of diversification, an investment platform can be a great tool. It can help you gain access to a variety of investment options in Singapore, such as equities, corporate bonds, government bonds, and more. StashAway stands out with our in-house proprietary investment framework, ERAA® (Economic Regime-based Asset Allocation), which offers a strategic approach to diversify portfolios. The ERAA® strategy fine-tunes asset allocation in sync with the given economic environment.

That being said, maintaining a diversified portfolio continues beyond the initial investment stage. It is best to perform regular portfolio reviews due to the dynamic nature of markets where different investments perform variably over time, whether in Singapore or overseas. 

Therefore, annual check-ins are vital to ensure your portfolio's composition aligns with your financial goals and risk tolerance. This might involve rebalancing, which means adjusting your portfolio back to your target allocation. It ensures your portfolio doesn’t stray too far from its risk level and helps keep your investment strategy on track.

2. Focusing too much on short-term performance

It's easy to be swayed by the highs and lows of short-term market performance. However, focusing too much on short-term performance is another common investing mistake. Investment isn't a sprint, it's a marathon. The best approach is to invest consistently and patiently over an extended period.

Investors who concentrate on short-term performance may make hasty decisions based on temporary market conditions, which can harm their portfolio's long-term growth. Instead of being reactive, take a proactive approach. Focus on your long-term investment goals and don't be swayed by short-term market fluctuations. Investing is about growing wealth over time, not overnight.

3. Investing without a plan

Investing without a plan is akin to setting off on a journey without a map. A well-thought-out investment plan acts as a guide, helping you make decisions that align with your financial goals and risk tolerance. It provides a framework for diversifying your portfolio, how much to invest, and when to review your investments.

In the absence of a plan, you may find yourself making impulsive investment decisions, often fuelled by market hype or panic. Such a reactive approach often results in potential losses and financial stress. Remember, successful investing isn't about chasing the latest trend, but about methodically executing a well-planned strategy.

4. Timing the market

Many investors fall into the trap of trying to time the market – predicting when stock prices will rise or fall. However, the reality of accurately predicting market trends is far more complex and fraught with challenges, even for seasoned professionals. More often than not, efforts to time the market can lead to missed opportunities and financial losses. 

Rather than attempting to buy low and sell high based on market predictions, long-term investing strategies like dollar-cost averaging can be more beneficial. This involves investing a fixed amount of money at regular intervals, irrespective of market conditions. The strength of dollar-cost averaging lies in its simplicity and effectiveness as a long-term investment strategy. By consistently investing a predetermined amount, you end up buying more units of an investment when prices are low and fewer units when prices are high. Over time, this practice can lower the average cost of your investments and effectively hedge against market volatility. 

Charting your course in the investment landscape

Through strategic planning and informed decision-making, investment can become a powerful tool that propels you towards your financial goals and ensures long-term financial security in Singapore. To avoid the common investing mistakes outlined above, continuous learning through platforms like StashAway Academy can be invaluable. Our expertly curated course content can equip you with the knowledge needed to navigate the investment landscape confidently, helping you sidestep common pitfalls and build a robust portfolio tailored to your needs. 

Whether you’re a novice looking for advice on investments or a seasoned investor keen on staying abreast of the latest trends and strategies, StashAway Academy is a go-to platform for anyone seeking tips to bolster their investing acumen. 

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