Three common mistakes that could be costing investors 

Investors are making three common mistakes that could be reducing their chances of making money; according to Tim Bennett investors should avoid saving rather than investing, paying the wrong amount of fees and making tactical mistakes along the way.

Saving rather than investing

 
The difference between these two key words is simple – saving is putting cash away, whereas investing is all about buying and holding securities, such as bonds and equities. The problem with confusing the two is it can lead to people keeping too much cash to one side and underinvesting. Over time, this leads to inflation-driven wealth erosion.

That is why investors should set out a strategy for cash holdings which involves creating a “rainy day” cash reserve, setting aside any further amounts needed for known future calls on capital and then investing everything else.
 

Paying the wrong fees

 
Whilst it is important investors keep fees down, due to the “drag” they can create when it comes to building wealth, my argument is that what investors should be after is value for money.

So, by all means automate a simple stocks and shares ISA plan via an app at a low cost but make sure you know what is “under the bonnet” when it comes to likely future performance.

As for those more complicated areas, such as cash flow modelling across multiple goals, don’t scrimp too much on the quality of advice you seek. In short, we should all weigh up at least three issues here:
 

• What sort of help is appropriate for my age and life stage?
• Should I be using an active approach, or a passive one, or a bit of both?
• Am I equipped for a DIY approach and, if not, where will I go for further support?

 
Remember, cheap isn’t always cheerful in financial services terms, any more than it is when it comes to choosing a restaurant. Taking the time to consider if you are getting value for money is essential.
 

Those big mistakes

 
As investors there are many ways we can get our approach wrong but here I want to pull out just three:
 

• Confusing luck with skill – this is a classic human failing but it can be expensive when it comes to investing. The keys to overcoming it are honesty, keeping records (of why you bought, or sold, a particular stock at a specific time) and not listening to “experts” unless they truly are one.
• Believing that you have an “edge”. Connected to the point above, the chances that you have found a way to beat algorithms, professional investors and more experienced private investors is miniscule. You have been warned.
• Failing to diversify. We have all read tales of people cashing in huge gains from just a few stocks, or even one. Don’t be fooled – spread your risk across a broad spectrum of themes, sectors, and securities.

 
In summary, if you don’t think you can avoid making these sorts of mistakes, my advice is to seek help from someone who can.
 
Tim Bennett is Head of Education at wealth manager Killik & Co