Investment choices now are seemingly endless, from self-serve share platforms to traditional (often high-margin) banking products, low-cost managed funds, property, collectibles and many more.

Running a business is another form of high risk, yet potentially high reward investment. The risk-return trade-off suggests the higher the risk you’re taking on, the higher the potential returns (reward) you could achieve - and vice versa, but is this always the case? How do you make the “right” choices, and avoid the big mistakes, when it comes to your own investment journey and portfolio?

There is no one right answer, no matter what any expert or clever advert may say. Investing is personal, and what will help you grow your wealth will be based on several factors unique to you. These typically include investment timeframes and goals, risk tolerance, and even your personal preferences and habits.

However, there are some super common mistakes investors (novice and experienced) tend to make, many of which I’ve made myself. And what better way to learn from my mistakes than to share them in the hope I can also inspire others to avoid some of my not-so-smart moves.

#1 Delaying investing

This is a common one, especially (sadly) for women. Although I was lucky enough to buy my first home at 32, I really hadn’t given much thought to investing in my future and growing my wealth before that point. I’m not sure if it was down to prioritising fun over future (I’m a travel junkie and also love good eats), a slight risk aversion, or just not feeling like I knew ‘enough’ to take the plunge. But I dearly wish I had started earlier, however small a step.

There is such beauty in the power of compounding returns, as the total time your money is invested tends to have a larger net impact than the total amount of money you’re able to invest. So take it from me, there’s no time like the present if you’ve been paralysed by indecision, or if you have any ‘lazy’ money sitting in your account being eaten up by inflation, lack of returns and high bank fees. It could be working much harder towards your future wealth.

#2 Thinking I know best

When I first started to dabble in Sharesies (sorry, Simplicity, I’ve since seen the light!) I thought I was awesome. Well, awesome at picking shares at least. My debut was timed perfectly just as the arrival of Covid-19 played havoc on the share market. Per my first point, I’d been dithering for ages on how and when to invest, and what better time to enter the market than when you see all the shares you were eyeing up suddenly halve in value! This, of course, gave me a false sense of confidence as I enjoyed the upswing of these shares recovering sharply from the crash. Really, it was just very lucky timing, which I soon realised once my decisions and ‘timing the market’ started to go (a lot) less well.

Stock picking, aka active management, is in my personal opinion a fool’s game - perhaps even for the pros, which I’ll never be. In fact, less than 15 per cent of actively managed funds tend to outperform their index benchmarks* And that’s in the world of professional fund management. I’ve lost plenty trying to outperform the market, thinking I know what will happen to particular companies and when, but of course I don’t. So, for me it’s sticking to the easy option - letting the market determine what I invest in, following well-established and well-diversified indexes that I’m confident will provide stable returns over the long term.

#3 Being obsessed with investments

Investing can be fun. Who doesn’t get a thrill out of watching their hard-earned savings increase, whether it be equity of their house(s), their shares or fund balance, or even their KiwiSaver account (yes, KiwiSaver funds are absolutely a legitimate form of investment. In fact I believe they’re one of the most important investments we can commit to). However, obsession is never healthy (just ask my poor cats) and investing is a long-term game. There are likely to be many periods your investments will fall in value, and loss aversion is a real issue.

Seeing negative performance can play havoc with emotions, as well as lead to rash decisions, a great example being the number of Kiwis who switched to conservative KiwiSaver funds after seeing the markets crash at the start of the pandemic.

Unfortunately, many of those people locked in their losses, missing out on the inevitable recovery seen in the higher risk funds they exited. A similar thing happened to me after buying my first investment property in 2021, and thereafter seeing it fall in value to below our purchase price. Luckily, after much anxiety and panic watching its value fluctuate, I slowly learned to stay calm and stop obsessing, knowing that for me it’s a long-term investment which will see volatility along the way, and I need to be OK with that.

There are several other mistakes I could mention here, many that I’m sure would ring true with other experienced and inexperienced investors. But in a nutshell, I’ve learnt that investing is about playing the long game. I should match my goals and preferences to my investment choices and not overthink things ... it doesn’t have to be nearly as complicated as you may think. I am also comfortable with staying the course; volatility is part of the game and with (calculated) risk should come long-term reward.

^The information provided and opinions expressed in this article are intended for general informational purpose only and are not financial advice or a recommendation.

*The SPIVA Institutional Scorecard Year-End 2021 showed underperformance rates of 83 per cent of both large-cap institutional accounts and mutual fund managers compared to the S&P 500 after deducting fees, over the 10-year period ending Dec 31, 2021. For the full report go to www.spglobal.com/spdji/en/spiva/article/institutional-spiva-scorecard