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Blog December 11, 2019 Ajay Bajaj

Do You Make These Investment Mistakes?

The ultra-high net worth individuals (UHNWIS) are known as those who have a net worth of greater than $30 million and these individuals possess wealth in the form of shares in private and public companies, and investments in real estate, nostalgia pieces like action figures, contemporary art and more. These individuals have come to gain such wealth, not due to some secret investment strategy; rather they deeply understand their options and the risks involved with each step taken. Most of the time, they navigate through their investments by avoiding major pitfalls, but as every human, they are liable to make a few mistakes as well. These investment mistakes could be surprisingly simple ones but be easily overlooked.

Nigel Green, the founder and CEO of deVere Group stated that “All serious investors, including myself, have made previous investment mistakes that could have been easily avoided.”[1]

Below is a curated list of the most common mistakes[2] tackled by the UHNWIs, and we hope the list acts as a reminder to keep a lookout for such traps.

Let’s remember Warren Buffett’s Rule No. 1 “Never Lose Money”

Investing Only In Intangible Assets

When one thinks of investments, intangible assets like stocks, bonds and shares come into their minds. Be it because of low entry costs or better liquidity, people have come to equate investments to these limited options. Taking the limelight in the general publics’ minds does not make these options the best ones.

Due to the illiquid nature of tangible assets and higher investment costs, there is a tendency to shun such opportunities. But, a mindful investor considers and invests in tangible assets such as commercial and private real estate, gold, art pieces and more.

Real estate has maintained a constant place in the UHNWIs’ portfolio spread to maintain balance amongst volatile stocks. Seasoned investors vouch for the illiquid asset options that are uncorrelated with the fluctuation marketing conditions. They consider a portfolio to be a robust one when there is a good balance struck between market-dependent options and tangible assets that are not easily swayed by market ups and downs. Such options show appreciation over the long term.

Focusing Only On Public Markets

This is another common mistake that is easily overlooked. The UHNWIs generate a substantial amount of wealth through private markets rather than public markets. These private markets include investments in private business and direct ownership of private businesses. One can also consider becoming an angel investor in private equity. This private market investments add an element of diversification to a portfolio.

Not Employing A Savings Strategy

While investing is the path to grow one’s wealth, one should also remember the importance of saving. Having a strong savings strategy in place is essential for sustenance and the UHNWIs understand this. A robust financial plan is one that builds the cash inflows whilst diminishing the cash outflows. The ultra-wealthy might not be perceived as savers, but they understand that living below one’s means aids in acquiring the target wealth in a shorter duration.

Investing Only In EU And U.S.

Developed countries such as those within the European Union and the U.S. are considered the best choices for investing in due to the perceived investment security. But, a conscious investor also invests in emerging countries and markets, such as Singapore, Chile and Indonesia. This is of course done after deep research into these emerging markets to judge if they form a good fit into the portfolio and if they are capable of boosting the overall investment strategy. Nigel, deVere Group’s CEO, has also stated that “Having a well-diversified portfolio across asset classes, sectors and regions means you are best-placed to mitigate risks and best-placed to take advantage of important opportunities.”

Failing To Rebalance Portfolio

The common mistake that investors make is that they do not realign their allocation goals with their changed financial situation and this way, their portfolio slips towards a specific segment rather than maintain balance. It is essential that every investor practice rebalancing their investment portfolios. With the practice of assessing and rebalancing when required, investors can ensure to allocate their funds appropriately as well as maintain a well-balanced portfolio.
UNHWIs consider rebalancing various portfolio parameters in on a regular basis.

Comparing Strategies

Many investors have a tendency to try and beat the investment strategies of their peers. They constantly compare their approach with that of their peers to try to get ahead in the game. Not losing track in this kind of competitive conduct is paramount to building wealth.
The UHNWIs understand this and construct investment goals that meet their personal requirements. Such well-versed investors adhere to and mould their investment strategies based on their short-term and long-term plan rather than compare and alter their strategies to beat their peers’.

With such common mistakes that can easily be avoided, it is also important to be aware of one’s own temptations. Investors cognizant of their financial situation resist the desire to purchase luxury items even if the items are in the range of their affordability. They do not fall prey to any social status comparisons. They rather invest their money to gain compounded appreciation before they spend on items of ‘wants’ rather than ‘needs’. 

Now, let’s remember Warren Buffett’s Rule No. 2 “Never forget rule No. 1.” 

 

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