3 Common Investing Mistakes
Some classic DIY investor mistakes we often see.
Written by Patryk Dyjecinski

IFA and Founder of Clara Wealth

Our investment partners, Dimensional Fund Advisers, have written a summary of 3 classic investing mistakes we often see.

Many people start out managing their own investments. But as their earnings and assets grow, their financial needs and challenges become more complex—and continuing to go it alone could prove costly in terms of investing miscues. Consider three common mistakes that can reduce returns and increase anxiety:

1. Trying to Time the Market

Investors may be tempted to cash out of the stock market to avoid a predicted downturn. But accurately forecasting the market’s direction to time when to buy and sell is a guessing game. Missing only a brief period of strong market performance can drastically affect your lifetime wealth.

For example, the chart below shows a hypothetical investment in the MSCI World Index, a broad stock market benchmark. Over the entire 10-year period ending December 31, 2023, a £1,000 investment in 2014 turned into £2,965. But what if you pulled your cash out at the wrong time? Missing the best week, month, three months, or six months would have significantly reduced the growth of your investment.

Rather than trying to predict when stocks will rise and fall, investors can hold a globally diversified portfolio—and by staying invested, be better positioned to capture returns whenever and wherever they occur.

2. Focusing on the Headlines

Investors may become enamored with popular stocks based on recent performance or media attention—and overconcentrate their portfolio holdings in these companies. One example is the rise of the large US technology companies known as the Magnificent 7 (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla). But the chart below shows that many fast-growing stocks have stopped outperforming after becoming one of the 10 largest stocks in the US. On average, companies that outperformed the market on the way up failed to outperform in the years after making the Top 10 list.

The lesson? Rather than loading up on a handful of stocks that have dominated the market, you can own many stocks through funds or ETFs. Diversifying across industries and global markets can help reduce overall risk and position investors to potentially capture the returns of future top-performing companies.

3. Chasing Past Performance

You might be inclined to select investments based on past returns, expecting top-ranked funds to continue delivering the best performance. But can they maintain that outperformance? Research shows that most funds ranked in the top 25% based on five-year returns didn’t remain in the top 25% in the next five years. In fact, only about one in five equity funds stayed in the top-performing group, and only about a third of fixed income funds did. The lesson? A fund’s past performance offers limited insight into its future returns.

Working with an Adviser

Avoiding these mistakes can improve the odds of reaching your long-term investment goals. But, as a do-it-yourself investor, you’ll have to manage the challenge alone. A qualified financial adviser can offer deeper expertise and insights that lead to better financial habits.

But the potential benefits go beyond just helping you avoid a bad decision. An adviser can design a diversified, research-backed investment strategy based on your long-term goals and comfort level with risk. Equally important, you can look to a seasoned professional for guidance through different markets. By walking with you on the journey, an adviser can encourage the discipline essential to building wealth over time.

Sticking with your plan helps put you in the best position to capture the returns offered by the market.

You can read more about me HERE and our investment philosophy HERE.

Please get in touch at contact@clarawealth.co.uk or on 0207 097 4968 if you wish to discuss your investments or have any other questions.

This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
Past performance is used as a guide only; it is no guarantee of future performance.Past performance is not a reliable indicator of future performance. 
The value of investments may go down as well as up and you may get back less than you invest.