Financial planning

Seven top tips for multi-asset investing

Lee Moran

Investing is an activity that’s rife with opportunity to fall into bad habits, be led astray or make decisions for the wrong reasons. Being aware of these behavioural traps and temptations can be the first step to avoiding them.

 

1. Resist the temptation of short-term opportunities

Investing for the long-term sounds like an obvious strategy but it is surprising how often immediate satisfaction can encourage impatient and shortsighted behaviour. The prospect of immediate gain invites temptation to pile into whatever is the flavour of the month long after the opportunity to profit has passed.

Done mindfully, however, moving in and out of markets or asset classes can work. But it needs to be done for the right reason: to take advantage of short-term mispricing.

That aside, an approach that weathers market ups and downs over years, not just weeks, almost always proves more fruitful in the long term.

2. When it comes to information, less could be more

In a data-overloaded world it is easy to gorge on information. Having the discipline to screen out market noise also means resisting the temptation to change your basis for valuation every time a new fad comes along. People lost fortunes in the dot.com bubble by being attracted to fashionable new metrics instead of analysing company cashflow. Keeping your basis for selecting equities or bonds sound and lean is arguably the key to making successful choices.

3. Just because everyone else is investing, it doesn’t always mean you should to

Whether its equities, bonds or property – following the herd must always be treated with caution. Read our previous blog for more information on herd investing, but bear in mind; wherever you invest, invest for the right reasons for you – not just because everyone else is doing it. Remember the value of your investment can go up as well as down, and may be worth less than originally invested.

4. In investment there are no short cuts

Understanding what you’re investing in means doing the hard work… even though it’s rarely the quickest way. Only once due diligence has been done, can you truly rest comfortably.

In active equity investing, that means doing (or having your financial planner do) the hard work to get to understand every single company first hand. Likewise in bonds, don’t just look at the yield, also measure and compare bonds against other valuable criteria such as default rates, the underlying nature of the company and its industry (or economy).

5. Being diversified is the key to calm – even in volatile markets

When markets are plummeting and everyone is selling, it’s easy to panic. But if your portfolio is properly diversified, you can afford to remain calm. There are rare cases when the majority of asset classes have fallen together (the 2008 global credit crisis), but it’s usually a case of swings and roundabouts. Keeping a portfolio of varied assets and you’ll be able to withstand the unpredictability of markets.

6. Imitating the index is the poorest form of flattery

‘Benchmark hugging’ can often be driven by fear. If others are doing it then it must be a good move, right?

Not always – it can mean that you’re only investing in assets that have done well in the past rather than those that might do well in the future. When constructing a portfolio, it might be a good idea focus on assets that offer the best potential for future return at an appropriate level of risk, rather than market indices. Remember, past performance is not a guarantee of future return.

7. Overconfidence can be fatal

Being overconfident can lead to mistakes. Even if you’re a seasoned investor, spending more time asking yourself why your judgement could be wrong, rather than gathering proof that it’s right, can lead to a better outcome.

Hindsight is a wonderful thing

Particularly in investments markets – so for anyone looking to buy (or sell) an investment, hopefully this blog will serve as some food for thought.

Alternatively, a good financial planner can help you set up and manage investments that are in line with your personal goals. If you’ve yet to find a financial planner and are interested about how an 1825 planner could help you, please get in touch.

The information in this blog should not be regarded as financial advice. As with any investment, the value can go down as well as up and you may get back less than you paid in.