Tue, 03/06/2014 - 15:11
The top five most common mistakes made by millionaires are failing to diversify, investing without a plan, making emotional decisions, failing to review a portfolio, and placing too much focus on previous returns.
That’s according to a poll by deVere Group of 880 high-net-worth clients. When asked to reveal their number one investing mistake before seeking professional advice from deVere, 23 per cent cited failing to adequately diversify their portfolio.
Some 22 per cent responded investing without a plan, 20 per cent said it was making emotional decisions, 16 per cent answered failing to regularly review the portfolio, and 14 per cent claimed it was focusing too heavily on the history of an investment’s returns. Five per cent cited other errors, including impatience, investing near the top of the market, adhering to recommendations from acquaintances, and paying tax on the investments unnecessarily, amongst others.
Those polled by the organisation, which has more than 80,000 clients worldwide, are based in the UK, the US, South Africa, Hong Kong, Japan, the UAE, Indonesia and Thailand and have investable assets of more than GBP1m.
Nigel Green, deVere’s founder and chief executive, says: “Interestingly, there are minimal differences between the top five most common investment mistakes previously made by high-net-worth individuals.
“This close weighting could suggest that, according to the respondents, all of them are almost equally as significant and costly – and therefore must be avoided.
“As the survey highlights, failure to diversify a portfolio is widely regarded as one of the most common investment pitfalls. Spreading your money around is a vital tool to manage risk. However, it must be used correctly. Diversification will only add real value if the new asset has a different risk profile.
“The poll underscores how 22 per cent of today’s millionaires have also in the past fallen into the all-too-familiar trap of randomly investing, or investing without a structured, robust plan. Anyone who has an investment plan can expect their portfolio to outperform those without a plan. To my mind, unless you have a sound investment plan you are gambling, not investing.
“Most decisions in life are emotional to some degree but making excessively emotional decisions can prove deadly when it comes to investments because they are blighted by prejudices and biases. Working with an independent financial adviser is one recommended way to help take excessive emotion out of the equation.
“Sixteen per cent of respondents cited that failure to review their portfolio on a regular basis was their number one investment mistake. This is not surprising as even the best portfolios can go off-target over time. Investments need to be reviewed and potentially rebalanced at least annually, preferably more often, to ensure they still deserve their place in the portfolio and that they are still on track to reach your long-term financial objectives.
“Additionally, high-net-worth individuals told us that they have in the past been caught out by relying too much on historical returns and not giving enough importance to future expectations. The future investment situation is likely to be different from time-aged averages. Past averages may have little bearing on the current environment and therefore the actual returns you receive.”
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Mon, 25 May 2015 00:00:00 GMTMarket Risk Audit VP/SVP | Risk Management | Singapore
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