Common investing mistakes

Many people don’t realise that the greatest impact on their investment returns could be their own behaviour. Here are four common mistakes to avoid.

3 minute read

One thing’s for sure, the only thing you can count on when it comes to the economic environment is change. Here's what you should avoid when it comes to investing - no matter what the market’s doing.

Mistake 1: Making decisions during periods of market distress

When you see the value of your investment going down, it’s easy to be nervous, and this is when we risk making the wrong decisions. It’s important to remember that short-term market weakness and volatility is inevitable, but that markets tend to go up over the long term. While there may be good reasons to sell, you should also remember that selling if you’re nervous, when markets have fallen, may only lock in your losses. One suggestion is to stay focused on your long-term goals and try to ignore market “noise”. It's also a good idea to check whether any funds you've invested in continue to match your appetite for risk, as well as your investment timeline.

Mistake 2: Becoming overconfident in strong markets

Strong markets can give you a false sense of confidence in your ability to make investment decisions. It’s important to remember that returns from rising markets aren’t necessarily an indicator of your investment skills. It’s how you behave during times of market distress, and whether you stick to funds that are right for you in the long run, that are the signs of a good investor.

Mistake 3: Going with the herd

It’s a natural human tendency to position ourselves relative to others and to feel the need to “keep up”. Unfortunately, this trait can lead to poor financial decisions. Investment trends, like bitcoin, can easily get traction and create conversations amongst friends and family. While it’s tempting to take part in the latest trend, it’s important to take the time to assess any investment on its own merit, and also against your personal goals, appetite for risk, and investment timeline.

Mistake 4: Being swayed by recent events

We often base our decisions on the recent past – it’s the way we’re wired. This is especially true when it comes to investing. If investment values, like managed fund prices, shares, or even interest rates, are currently rising or falling, we expect this trend to continue. We tend to look past information that doesn’t support this view of the world and focus on evidence that does. Instead of reacting to the latest market movements, it’s usually best to stay patient and stick to your personal plan.

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This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser.

Neither Bank of New Zealand nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any information, representation or omission, whether negligent or otherwise, contained in this article.