To keep your margin of error to a minimum, we look at the most common blunders and how to avoid them.
Beat the market odds by avoiding these 10 common investing mistakes
Every investor makes costly mistakes, especially in the early years. Naturally, you want to keep them to a minimum because the fewer mistakes you make, the richer you will ultimately be.
Here are 10 common investor mistakes and how to avoid them.
Following the crowd
Investing is a risky business. Too many investors seek safety in numbers by following the crowd. They buy shares when everybody is buying and sell when everybody sells.
This means they repeatedly buy at the top of the market, when shares are expensive, and sell at the bottom, when prices have collapsed. It is a recipe for losing money.
If you're wondering whether to buy or sell, try the party test, says Jeremy Batstone-Carr, the London-based head of private client research at Charles Stanley Stockbrokers. "If you tell people you are a stockbroker at a party and everybody backs away, that's a good time to buy. If they cluster round looking for stock tips, that's the time to sell."
Hanging on to losers
In an ideal world, investors would hold on to their winning stocks or funds and sell their losers. In practice, too many do the opposite. They are too fast to bank profits when a stock rises and too slow to sell when an investment falls, says Mr Batstone-Carr. "They can't bear to admit they have made a mistake and hang on in the hope it will rebound, often losing even more money in the process."
You should run your winners and sell your losers, not the other way around.
Trying to time the market
Every investor dreams of timing the market. They imagine buying at the bottom and selling at the top. Or investing in a tech start-up that blossoms into the next Apple.
They also regret all those missed opportunities. Why didn't they buy China earlier? Why didn't they sell their banking stocks before the financial crisis?
Even the best investors can't consistently time the market right, says Tim Harvey, the managing director of Offshore Online, the Plymouth, UK-based expat broker. "Stock market movements only look obvious in retrospect. At the time, nobody knows. If you could repeatedly time the market, you would become rich beyond the dreams of avarice. But you won't."
Instead of looking for the perfect time to buy, smooth out the volatility by drip-feeding regular amounts into the market.
Some investors check their online portfolio several times a day, fretting over the latest share price shift or market panic.
Obsessive investors don't just lose sleep, they also make bad decisions, Mr Harvey says. "All this talk about global meltdown is panicking investors. I was recently talking to a client who was considering selling his entire portfolio. I had to point out it had actually risen 4 per cent so far this year."
Stop obsessing and look to the longer term. "You should be investing for a minimum five years, preferably 10 or more. That gives markets plenty of time to recover from the current volatility," Mr Harvey says.
Failing to review your portfolio
While some obsess over their portfolio, others make the mistake of ignoring it, says Ashley Clarke, the director at Dubai-ifa.com, a financial and tax specialist adviser. "I often see new clients who have never looked at their pension since they bought it, say, 15 years ago. People come to Dubai to earn money tax-free and save for the future. You have to keep a close eye on that money."
This means reviewing your investments regularly to check they are performing and still match your needs. If necessary, seek advice from an independent financial adviser.
Paying rip-off fees
Perhaps the biggest threat to your wealth is getting ripped off by an unscrupulous investment adviser. Expats are in particular danger of being overcharged when buying investment plans, Mr Clarke says. "Advisers in heavily regulated countries have to disclose all the fees and commissions they earn. Advisers selling offshore products don't and often charge a thousands of dollars more for exactly the same product."
When seeking advice, ask your adviser to write down all the commission and fees they will earn from you. "If they won't, find somebody who will," Mr Clarke says.
Borrowing to invest
Never invest money in a stock that you can't afford to lose. If that stock collapses, you are in trouble. And you certainly shouldn't borrow to invest. Because if that investment bombs, your bank will still want its money back. And you won't have it.
Failing to diversify
Don't tip too much money into one stock, sector or asset class. In these volatile times, you must spread the money around, says Jamal Saab, the head of the Middle East North Africa region at Natixis Global Asset Management. "One of the most common mistakes we see is failing to diversify. If you buy too much of the same thing, you are taking a bigger risk."
Spread your money between shares, bonds, cash, property and even alternative assets, such as currencies, gold, energy and agriculture. "To balance risk, you want investments that respond differently in market conditions," Mr Saab says.
Falling in love with a stock
You bought this fast-growing company several years ago. It was love at first sight. The stock soared and you planned a beautiful future together. But that early rush fizzled out. Soon it started to look just like all the other stocks.
You stood by it. Together, you would get the magic back. You're still waiting...
Too many investors get seduced by the early success of a stock, fund, sector or country. They refuse to accept it isn't working anymore. At some point, you have to say goodbye and move on.
Leaving it too late
The earlier you start investing, the better. That's because your early contributions have so much longer to grow in value, says Andrew Tully, the pensions technical director at MGM Advantage, a specialist retirement advisory firm. "If you start investing at, say, 25, you need to save just US$91 [Dh334.26] a month to have $100,000 by age 65, assuming a modest investment return of just 3.5 per cent after charges. If you wait until age 35, you need to save $148 a month. And if you don't start until 45, you will need to save $266 every month. That's almost three times as much."
But the biggest mistake you can make is failing to invest at all.