Your portfolio
A selection of financial advisers tell Hannah Smith which mistakes
they see investors make again and again – no matter how many times
they are warned
On deaf ears
I
nvestors can be quick to
complain when returns don’t
meet their expectations, but
is that because they aren’t
listening to what the professionals
are telling them? Here, numerous
financial experts reveal which
investment lessons always seem to
fall on deaf ears – no matter how
often they repeat them.
Believing “all that glisters is gold”
Novice investors can be easily
seduced by the promise of high
annual returns, without thinking
about how they are generated and the
potential risks, says Chris Douglas,
managing director of Douglas White.
“It’s usually people with less
experience who aren’t getting great
returns from cash, they see things
advertised on Facebook or elsewhere
with a headline such as ‘guaranteed 8
per cent return’ and it implies there’s
very little risk,” he adds. “And, because
they’ve got less experience, they deem
it to be true.”
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He says a conversation about risk
and reward usually demonstrates to
investors that “if something looks too
good to be true, it probably is”.
Underestimating risk
It’s common for retail investors
to underestimate the risk they are
taking, says Scott Gallacher, director
at Rowley Turton. They also mistake
risk-driven returns for
great returns. For
example, a bank
had sold one
of his clients
a portfolio
which had
delivered
strong returns, but its risk-rated
returns were poor compared with
similar portfolios.
“The client was a bit more cautious
so he should have had a lower-risk and
potentially lower-return portfolio,”
says Gallacher. “He took
some convincing, but
the first wobbles in the
market persuaded him
to switch.”
Novice
investors
can be easily
seduced by the
promise of high
annual returns, without
thinking about how they
are generated and the
potential risks
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