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Old 15th-November-2008, 10:19 PM
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Thumbs up How to Avoid Pitfalls in Investing & Shares?

Avoiding pitfalls in investments shared by a senior executive from O**C Bank....Hope this helps those who is thinking not to get bored & not to be burnt..

Investors these days are spoilt for choice. There's literally a wealth of products to choose from. But sometimes, that can be a problem. That's because with so much choice, investors get confused, especially with products becoming increasingly complicated and sophisticated.

If you are one of those feeling bewildered by all the variety, take heart. Here's a helpful list of common mistakes to avoid.


1 DO NOT KNOWING WHAT YOU WANT

MANY people invest without knowing what they want or what they are investing towards. Not having a clear picture of your goals means that you could be buying investment products that may not meet your objectives.

You should start by asking yourself some basic questions.


What am I investing towards - university education for my child, or maybe a retirement fund?

How long do I have to achieve my goals - 10 years or 20 years?

How much can I afford to set aside as savings and investments?

2 NOT HAVING A PLAN

INVESTING without a plan is like driving in a foreign land without a road map - you may know where you want to go, but have no idea how to get there. With a plan, you can get back on course when you go astray. Without one, you would not even know if you are off course.

If you do not have a plan already, this should be your top priority before you do anything else. Talk to a financial adviser if you do not know where to start.

3 TAKING RISK TOO LIGHTLY

SOME people take too much risk, others take none at all - both are mistakes. The amount of risk taken correlates to the level of returns - the higher the risk, the higher the returns.

People who take too much risk end up as speculators rather than investors. Remember that you should speculate only what you can afford to lose.

It is necessary to take some risk to see returns - the challenge comes in taking the right amount of calculated risk in order to obtain the results you desire.

4 PLACING ALL EGGS IN ONE BASKET

YOU need to diversify and spread your investments over assets that move in opposite directions during an economic cycle, (for example, shares versus bonds) so that you can limit your exposure to any single source of risk.

Establish an asset allocation for your portfolio to help you decide how much you should put into various instruments such as bonds, equities and property.

5 CAVING IN TO PANIC


DO NOT start panicking when there are short-term fluctuations. For your long-term investments, you should not be overly alarmed when movements are experienced in the short term.

In the face of market volatility, fear causes many to bail out of carefully planned investments. This results in mass selling - driving prices down and escalating losses. Look at the big picture when tracking investments.

6 RELYING ONLY ON THE PAST


PAST performance is often the basis for making many decisions, especially when choosing which unit trust to invest in. However, past performance is not always indicative of future performance and is not the only basis by which a fund can be evaluated.

Ratings services such as Mercer Retail Funds Rating present a forward-looking view on a fund's future performance prospects based on qualitative assessments of fund managers, their experience and the investment process, among other things.

7 LISTENING TO HEARSAY


DO NOT fall prey to herd instinct. Avoid making big financial decisions based on hearsay.

If you have an illness, you would consult a doctor. In the same way, treat your life savings and financial future as you would your health.

Make informed decisions by speaking to financial advisers or professionals.

8 RELYING BLINDLY ON DATA


DO NOT treat financial articles or advertisements as a prescription of what you should do with your money. The right way to read articles that tout specific unit trusts or stocks is to treat them as useful information.

Always read between the lines, look at the terms and conditions of sale and do your own research.


9 NOT FINDING OUT ENOUGH


THIS is one of the biggest mistakes anyone can make. Far too many people get their fingers burnt by failing to find out more about what they are investing in.

Do not be afraid to ask your financial adviser more questions if you do not understand any feature or risk elements of a product. Get all the facts, especially about any potential pitfalls and risks, before committing your hard-earned money.

10 GOING ON AUTO-PILOT MODE


DO NOT assume that once you have your plans and portfolio in place, you do not have to review or re-balance it. You need to monitor your investments regularly to capitalise on market changes and movements.

Similarly, your plan may need some tweaking when you face major changes or challenges in your life that could have an impact on your finances.

Article contributed by: Wealth management


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Last edited by Klinky; 15th-November-2008 at 10:20 PM. Reason: wrong text
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