The good news is that you don't need to be a Jedi Knight or have a Masters in Finance to be able to not get hurt with investments: just avoid these 10 very common mistakes.
1. Don't mind the costs
We said it in every language: costs can kill you, financially speaking. Investing €15.000 for 30 years can lead to a capital of €106.000 if done with a low-cost ETF or mutual fund, and €67.000 if done with a mutual fund that has a 2% TER. You see for yourself.
Realistically, cost saving is the only real “free lunch” you can afford as an investor. Financial products with high commissions are often red herrings, just think of how overrated Alfa's idea of management is.
2. Abruptly changing time horizon
It usually works like this: you have chosen a portfolio assuming a certain duration of the investment, then the market "coughs", an instrument within the portfolio loses 5-6%, you read some negative opinions about it, you start shaking like rabbits and finally sell. This change of time horizon does monstrous damage: it typically causes you to lose about half of your earnings. Solution: invest a little at a time and forget about it. Don't be like the guy in the following chart…
3. Don't diversify
Diversification is only useless if you are able to predict the future and know what will be the best investment. If instead (as I suspect) you don't have psychic divination skills, well, then you should diversify your portfolio a bit. But without exaggerating.
4. Delay in investing for retirement
Question: did they explain to you that the INPS has a demented operating pattern? It is clear to you that working people pay for those who retire, but the number of retired people is growing unsustainably compared to the number of working people? And that therefore the public pension is increasingly a mirage, especially for those born after 1980? Well, if you have grasped the concept, run for cover.
Sleeping under bridges when you're old isn't good for osteoarthritis.
5. Do whatever the trusted broker says
If the bank, promoter or banker vehemently pushes a product, run to check its costs: in 9 cases out of 10 it is the most convenient product for them and, as you can guess, the most unnecessarily expensive for you. The performance you get will pay the price (literally).
6. Not reading prospectuses and contracts well
By law, intermediaries are forced to write everything down. Maybe in a small way and with that legal language that sends you into narcosis as early as the second line. But you have to read everything, if you don't want bad surprises.
7. Buy unit-linked (and index-linked) policies
These policies are among the least transparent financial products that can be found, they are padded with hefty commissions in favor of those who sell them (and we return to point 1). The seller will tell you lots of good stories about lockout and capital security. Beyond the fantasies, with a unit-linked (or index-linked) policy, in 90% of cases you will have an expensive product, with heavy penalties in case of early disinvestment and, after 10 or 20 years of payments, you will typically be rewarded with a disappointing performance (but, if it's any consolation, you'll have made the man who sold it to you happy).
8. Buy your bank's bonds
Bank bonds usually yield less than a BTP of the same maturity, because they are loaded with implicit charges, i.e. costs. Then, they are on average more risky and less liquid. And this is even more true for subordinated bank bonds, whose holders, with the recent entry into force of the bail-in, risk being called upon to put their hands on their portfolios in the event of default by the issuer. Before buying these bonds, study them carefully, compare them with a government or supranational bond (such as the BEI, BIS, etc.) and only then decide.
9. Believing you can get rich with online trading
The colorful world of online trading is teeming with gurus, intent on convincing you that you will become rich thanks to their fabulous courses or their financial market forecasting site. Know that being successful with trading is very difficult: in the vast majority of cases you will end up losing money and time. Learn to save and invest, not trade (and be cynical with these petty pirates).
10. Listen to economists, politicians, mass media
Noise in your ears is distracting – eliminate it. So here, for you and only you, is my personal list of noises to eliminate.
- Economists. Think how little they have been right about it in history: for example, in 2009 they failed to recognize the worst crisis since the Great Depression of 1929, despite a myriad of signs and, above all, the fact that the recession was already underway.
- Politicians. With rare exceptions, the events of any Parliament are lively, full of funny and quarrelsome characters who combine all sorts of things, passing from crises to sudden solutions, only to then fall back again into tragic crises: perfect plots for journalistic-television sagas. Generally the impact on the financial markets of all this is small. For example, despite the turbulent events in Italian politics, the spread continued on its way, indifferent to everything except the actions of the ECB. Going on significant historical facts, think that after the Japanese attack on Pearl Harbor in 1941 (which dragged the USA into World War II) the Dow Jones stock index lost only 6% (and in the following 12 months it gained 2,20. XNUMX%).
- mass media: newspapers, television. They bombard you with a constant stream of news and data (often superficially explained), which lead you to deviate from your investment path (see point 2). Some economic data comes out every day: sometimes they improve, other times they get worse, but they rarely impact your investments in the immediate future. For example, during the last eurozone recession (which started in March 2012 and ended in June 2013), stock markets in the eurozone returned around 13%. So you focus on a few important things, check your portfolio regularly, read the right, but don't be paranoid about following the news.
Simplicity is a virtue.
Source: AdviseOnly
