Choosing an investment requires careful consideration, and while we all want beneficial results from our investment choices, a number of common mistakes can cost you or impact the outcome. So, do you make any of these?
Not having enough money at-call
Investing for the longer-term is important and can help you achieve your lifestyle requirements later in life. However, restrictions, penalties and/or delays may apply when withdrawing funds from some fixed or long-term investments under certain circumstances. Hold enough funds 'at-call' to ensure you can cover everyday expenses and unexpected emergencies.
Ignoring investment time frames
Many investments have minimum suggested time frames due to the asset/s involved, so early withdrawal or redemption may result in losses to the investor. A common example is withdrawing funds or selling assets such as shares during a market downturn; therefore crystallising the loss. If markets are volatile, holding the investment for the minimum suggested time frame may allow time to ride out the ups and downs, potentially achieving a higher average return.
Not researching the investment or potential risk
Just like any major purchase, it is prudent to shop around and consider the features and benefits of the investment, to ensure they suit your needs and objectives. Consider the risk factors that can potentially affect the investment to avoid any future nasty surprises. Determine your risk profile and diversify across various assets and asset classes if necessary.
Focusing on fees instead of the net return
Fees can often be at the forefront of our minds when considering investments and ‘low fees’ are often promoted by some product providers in the marketing of their products. Fees and costs can vary and be complex to understand, making it difficult to compare products. Take into consideration the net return (the return paid less fees and costs) as this a clearer indication of performance.
Investing for one purpose or following others
Avoid basing an investment decision on a single factor, as this approach can be detrimental to other aspects of your finances. For example, investing into superannuation can be tax effective but does not allow access until you meet a condition of release. Don't assume an investment that is appropriate for one person is suitable for you, as everyone’s circumstances differ.
Not seeking information and/or advice
Investing in products or assets without inquiring often leads to unexpected detrimental outcomes. So, do your research, read the Prospectuses, Product Disclosure Statements or Terms and Conditions, and use financial information resources provided by government departments, agencies and seniors organisations to empower you to make informed decisions.
If necessary seek advice from a licensed professional Financial Planner and don't be afraid to keep asking questions until you fully understand the rationale behind the recommendation.
Craig Hall has worked in the financial services industry for approximately 25 years, including 11 years of providing independent financial information to consumers.
Please note that the information in this article does not constitute or imply financial advice. It is recommended that you seek professional financial advice and/or seek clarification from any relevant government department or financial services provider before making financial decisions.
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