As advisers and wealth managers we see how clients have invested both on their own and or with other firms.
Here are a few common mistakes we see that Tideway Wealth Management are acutely aware of.
Investing based purely on attitude to risk
Investing purely based on attitude to risk without regard to your investment objectives can lead to a mismatch between what the investor is trying to achieve and what their investments are trying to achieve.
Not having enough low risk investments
Being a forced seller of equity investments in a market downturn is a big danger for those drawing incomes versus those saving. Ensuring it does not happen automatically and having enough lower volatility segregated investments, plus making sure the volatility of your portfolio overall is within your personal tolerance to short term losses are key.
Holding too many negative real return assets
Most cash deposit accounts, gilts and lower risk corporate bonds will deplete your funds after allowing for inflation.
Over estimating the returns from shares versus other investments
Bond investing may seem dull sometimes versus the cut and thrust of equity markets, but bonds can still provide predictable real returns after fees which can underpin a portfolio and the income it needs to produce. As well as pushing bond prices up, quantitative easing has also raised the value of shares such that future returns could be lower than expected.
Over reliance on UK blue chip shares
UK companies now make up less than 6% of the world’s companies by market capitalization and have a poor 21st Century performance track record. Investors need to broaden their investment horizons beyond the UK to capture what’s going on in the world.
Paying too high, or too low, fees
Reducing fees, like reducing the tax you pay will improve your net returns and we see many advised solutions where the total fees being paid are averaging more than 2% a year. In the long term this will significantly dent returns and makes it even harder to get positive real returns after inflation and fees without taking too much investment risk.
However, not paying enough fees can also be damaging.
- Many investors who shun advice may find it harder than they think to plan their investments successfully when they start drawing income versus when they are simply saving for the future without specific goals. The FCA – the UK financial services regulator – has raised concerns over this since pensions freedoms.
- Buying passive, index tracking funds because they are cheap may lead to significantly lower returns if the wrong index is tracked versus an active managed portfolio of either shares or bonds where the portfolio can be very different to any specific indexes.