Uncommon investment mistakes (other than the obvious ones)

*This content is brought to you by Brenthurst Wealth

By Charize Beukes *

  1. Not using tax breaks. Thinking tax-wise – using tax-efficient products and allowances – helps you create wealth and protect your wealth from the government’s poor decisions regarding spending tax money. Tax-efficient vehicles/investments include Endowments that are taxed at a flat rate of 30% income tax and 12% CGT. This is a great investment option for individuals with a tax bracket higher than 30%. Another tax-efficient investment vehicle would be a tax-free savings account (R500 000 lifetime limit and R36 000 yearly limit). Learning how over-contributions to your Retirement annuity can benefit you in the long run, is also a great way to save on future taxes. 
  2. Panic selling. Do you panic when markets take a tumble and immediately make plans to start selling off stocks or jump on the phone with your advisor? This overreaction can lead to serious wealth destruction. While making changes to your portfolio is recommended occasionally, this decision needs to be backed by sound financial advice and proper research. Panic selling often leads to investors regretting their decision, as they either locked in major losses or missed out on substantial market upturn – or both! Unfortunately, history shows investors who overreact to market events typically end up doing worse than if they stuck to their long-term plan.
  3. Loss aversion. This is the other side of the coin. Investors who tend to hold on to underperforming stocks against all odds, don’t want to lock in any losses and keep holding out hope that the investment will recover. This can also lead to substantial losses in your portfolio over time. The key is to find a balance, always remember your investment strategy and objectives, and align your portfolio accordingly. 
  4. Market-watching. While it’s tempting to watch the markets and your investment performance constantly, don’t get swept up in the “daily noise” of it all. Market fluctuations are unavoidable, but cancelling out the daily noise will help you catch medium to long-term signals that may add value to your investment. Market watchers are usually tempted to make rash decisions in the long term by either selling stocks that are dipping but have a track record of performing well in the long run or because of overconfidence (buying trending stocks that are currently doing well and thereby increasing their overall risk). Which brings me to my next point…
  5. Buying trends. FOMO (fear of missing out) is real, and investors suffer from it too. Buying into the “next big thing” because a friend told you about it over a braai on the weekend – is the worst financial decision you can probably make. 99.99% of the time, these investment decisions aren’t based on sound advice and proper market research but rather on the fear of missing out. Let’s be honest: if your friend is getting a slice of the pie, I want the whole darn thing! Investors should remember that friends have different risk profiles, investment horizons and financial situations, so you cannot implement a “one stock suits all” approach. Rather do your due diligence and stick to reputable funds in line with your personal risk portfolio. 
  6. Investment Procrastination. Big words for a relatively simple idea: Delaying investing. This should have been number one on the list, as this is probably THE WORST mistake you can make when it comes to investing. The evidence overwhelmingly shows that, more often than not, those who invest and forget about their investments until they need them (whom we might call ‘lazy investors’) will achieve better investment outcomes than those who actively try to time the markets (whom we might refer to as ‘traders’) – Behaviour Gap. Whether you are timing the market or just putting off investing altogether – consider the following visual representations of how delaying your investment is actually costing you money:

Source: Visual Capitalist

* Charize Beukes, CFP® is a financial advisor at Brenthurst Wealth Pretoria [email protected]

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