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Investment

Common mistakes of investors

Investors, especially small ones, still make the same mistakes: they time the market, trust past returns and long investment horizons.

Retail investors are subject to a number of ills that affect their investments. These include efforts to market timing, as well as the thesis that past returns are a guarantee of future ones and trust their long-term investment horizons or are of the opinion that professional asset managers are always right. We looked at these errors in more detail and tried to argue them factually and concisely.

Market timing

When is the best time to enter an investment position? Seasoned investors, as well as their newcomer colleagues, are puzzled by this question. The answer is simple: do not time markets. If you are entering into an investment once, always consider whether it is not possible to divide the investment into several parts. However, it is best to invest regularly. At the very least, you avoid the urge to timing while averaging the value of individual purchases. You will achieve better prices than if you entered the capital market at the most inopportune moment.

Past revenues

The often mumbled mantra of beginning investors is that past returns are not a guarantee of future returns. Nevertheless, a lot of small investors look backwards and imagine unrealistic returns even at a time when markets are clearly indicating declines or even losses.

Long investment horizons

When investing, it is necessary to follow the recommendations of investment horizons. Different assets behave differently over time. Failure to meet the investment horizons could result in potential returns. For example, for investments in shares or equity mutual funds, it is advisable to count on at least five years for which you will hold the securities, on the contrary, for money market funds, the investment horizon is set at one year.

Before selling securities (shares, bonds, debentures or unit certificates), calculate whether you will realize a loss or a profit. If you lose money, you better think carefully about the sale.

Professional asset managers

Investors are sometimes under the impression that their investments must be taken care of by professional managers with a university degree. This may not be a necessary guarantee that the pensions entrusted will be well valued. If you invest through mutual funds, the managers of these funds will most likely have sufficient experience in managing the fund and buying or selling assets. The achieved education will not be the only prerequisite for quality fund management.