The seven deadly sins of investing

Beware the seven deadly sins of investing - common errors that can be easily avoided, but are so often overlooked. Just by taking a little time to think carefully about your approach to saving and investing, along with regular reviews of your existing assets and investment goals you can have a major impact on the future returns of your portfolio.

PRIDE

Trying to time the markets

Pride was originally considered to be the 'deadliest' of all sins, and believing you are smarter than the market is about as deadly a sin as you can be guilty of as an investor. Waiting for the perfect moment to invest may sound like a good idea, but it is impossible to be sure how the markets are going to move. If you have decided a particular fund or share is right for your, you should go ahead and invest. This is the best way to ensure you benefit from the days when the markets make the biggest gains.

Research by Fidelity International shows that missing out on these good days can have a significant effect. Someone who invested £3,000 in a fund tracking the FTSE UK All-Share Index for the ten years to end of 2005 would have seen the value of the investment rise to £6,418.01. Missing just the ten best days in this over this period would have reduced the final total to £4262.50.

It is also worth remembering that investment doesn't have to be in one big lump sum. Choosing to invest via a monthly saving plan can mean investors benefit no matter how a market is performing; if share prices go up, the shares an investor already owns can go up in value while if shares go down, the next payment can buy more shares

GREED

Being distracted by recent performance

Don't get greedy - past performance is not a guide to future returns, a warning all investors are (or should be) familiar with. Performance figures should be treated carefully - good returns over six months could be down to good luck, while lacklustre results may be just a bad patch. Investors should look back over several years, perhaps as far as the current fund manager has been in the job. And check out all the manager's funds, not just the one that's being considered for an investment.

GLUTTONY

Investing with no plan

Many people start investing when they realise how important it is to save for the future, but they don't necessarily take the time to think about the best way to achieve their goals. The secret of successful investing is devising a plan and sticking with it over the years.

WRATH

Focusing only on charges

While charges do make a difference to the returns of the fund, the fund with the lowest charges is not necessarily the right choice. Charges are only one of the things to consider. It can also help to see how a fund manager chooses investments and what sort of service the company provides. Paying a little extra may bring extra benefits.

ENVY

Duplicating investments

Diversification is key to investing - a range of sectors and regions enables risk to be spread. But a variety of different funds does not mean that diversification has been achieved - funds may invest in similar companies or have a disproportionate focus on one area.

SLOTH

Failing to review

Once you've made an investment, don't be lazy with it. Making an investment is just the first step towards securing the financial future. It is just as important to review holdings as often as possible.

• Is it affordable to invest more?
• Adapt an investment plan if circumstances have changed, i.e. having children, getting married and changing career all have a significant impact
• Is the combination of investments still appropriate to time-lines and goals?
• Does your portfolio still reflect your plans?

LUST

Trusting the future to cash

Don't be seduced by the love of money for its own sake. While deposit accounts are secure, this security comes at a price. Returns on cash are much lower than what could potentially be achieved from a fund that invests in shares. Part of the problem is inflation, which eats into the value of any long-term investment. Relying on a deposit account could mean you end up with less money than is needed.

03 July 2006 © Moneyextra.com

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