The difference between successful investors and unsuccessful ones is often as simple as doing a few things right and steering clear of some common mistakes. Avoid these 5 traps and you’ll be well on your way to achieving your financial goals.
Don’t Fly Blind
Would you start a major project at work without first setting some goals and creating a plan of attack to accomplish them? What about if you were remodelling your kitchen or buying a car? The answer is “of course you wouldn’t”. So why do so many people fail to create a plan for their long-term financial goals? In fact , in a recent Wealthminder survey, 82% of respondents said they did not have a formal financial plan. These people are flying blind. Don’t be one of them. Creating a basic financial plan isn’t complicated and doesn’t have to be very time consuming. Answering a few simple questions about your goals, your current financial situation and your willingness to take risk is enough to see whether what you are doing is likely to work or not. Once you have a plan in place, it becomes much easier to judge if you’ve gone off-course and it gives you a framework for making decisions on how to get back on track.
Focus on the Big Picture
When is the last time you thought about whether to buy or sell shares in Apple? How about when you last thought about what percentage of your portfolio should be in emerging market stocks? The reality is most investors spend all of their time thinking about questions like the first one and almost no time thinking about questions like the second one. The problem with this is studies show over 90% of your long-term returns are driven off of your asset allocation choices and not the individual assets you select.
A key output of any financial plan is a target asset allocation. Make sure your portfolio lines up with your planned allocation and you’ll be a step ahead of the crowd.