Posted on: 14th Mar 2016
With the end of the tax year looming, independent financial advisers up and down the United Kingdom are once again working hard to prevent their clients making a wide variety of common mistakes. ISA investors in particular are prone to making several quite simple yet potentially detrimental errors, the likes of which stand to harm nobody else but themselves.
So in order to ensure that as many of these ‘rookie errors’ are avoided as possible, here’s a quick rundown of the so-called ‘seven deadly ISA sins’ and how to avoid them:
Sin 1 – Relying on Past Performance
The biggest problem with past performance is that it cannot realistically tell you anything about the future. As such, just because something has worked for you in the past doesn’t necessarily mean it will work right now or going forward. Instead, you need to do your homework…and plenty of it.
Sin 2 – Confusing Volatility With Risk
The difference between volatility and risk is that while volatility has the potential to be nothing but a positive and profitable thing, risk is quite simply risk…end of story. 2016’s markets have to date proved to be rather volatile to say the least, but this has in no way proved to be a bad thing for the savvy investor.
Sin 3 – Putting All Your Eggs In One Basket
It’s the kind of sin that every investor at every level should be able to work out pretty easily isn’t a good idea. Nevertheless, so many investors choose to put all their eggs in one basket as a means by which to shield them from a volatility, not realising that diversification is in fact the best protection of all.
Sin 4 – Short-Term Thinking
Another highly detrimental mistake and also a relatively obvious one, thinking short term is generally never a positive approach for the ISA investor. The simple fact of the matter is that as achieving your goals is something that will require plenty of time, you need to get into the habit of thinking long-term, rather than short term.
Sin 5 – Not Investing Available Cash
Deadly sin number-five is that of having the required money available to one side and choosing not to invest it, for whatever the reason. Not only is it important to get your cash working as hard for you as possible, but it also simply makes sense to ensure that it starts working for you as early as possible. Simply allowing your spare £15,000 to gather dust elsewhere makes no sense at all.
Sin 6 – Following Stock Market Truisms
Roughly translated, just because it is a rule of thumb does not mean that it is a rule you should be following, or even paying any real attention to. Stock market truisms sometimes prove accurate and other times do not – not the kind of coin- toss you should be taking chances with.
Sin 7 – Not Looking Under the Bonnet of Your Funds
Last but not least, what this basically refers to is the habits of failing to investigate exactly what it is the company or companies in question actually intend to do with your money. Instead of just handing the cash over and assuming it will be put to good use, it makes so much more sense to be proactive and look for sustainable growth.