The rich in the UAE and elsewhere seem smart for the simple reason that they’ve made much more money than others, but they do make mistakes only to regret later, just like most of us.
Interestingly, some of the investment mistakes that the well-heeled make are very much like an average salaried person would make, only that these mistakes cost more because there is more money at stake.
This is the conclusion of a new study by financial advisory deVere Group. Listing the millionaires’ mistakes, the firm comes up with the top five to be noted.
#1 Married to one asset group
Haven’t we all heard that putting all eggs in one basket is not really a good idea? At the top of the list of millionaires’ investment mistakes is the widespread failure to diversify. While a concentrated position in a single asset or industry can certainly help make someone rich, it’s a recipe for disaster when trying to invest or preserve wealth. The survey reveals that 23 per cent of the rich who participated in its poll cite failing to adequately diversify their portfolio as their No. 1 mistake.
#2 No investment plan
Second on the list is not having an investment plan in place before putting in money to grow. Just one per cent short of those who put all their money in one industry or sector, 22 per cent of the surveyed said they invested without a plan, again a recipe for disaster.
#3 Emotions ruin returns
We are bound to take emotional decisions as it is a very human trait, but in financial matters, that can be a big mistake. And this is exactly what is next on the list. Twenty per cent of the wealthy individuals surveyed said that they did make emotional decisions only to regret when reality struck.
#4 No pruning involved
Like while gardening, financial investments need constant pruning to ensure that your wealth tree is healthy and continues to grow. However, many fail to do so, including the millionaires in question, and this is something regretted later on. Sixteen per cent of the rich said they failed to regularly review the portfolio, which resulted in loses.
#5 Stuck up with historical averages
The last mistake that the rich list while making investments is going by the past returns of the asset classes. This may not necessarily be true, as one asset group that performed well in the past five years will also continue to do so in the next decade or do. This was cited by 14 per cent of the participants – making the mistake of focusing too heavily on the history of an investment’s returns.
“High-net-worth individuals told us that they have in the past been caught out by relying too much on historical returns and not giving enough importance to future expectations. The future investment situation is likely to be different from time-aged averages. Past averages may have little bearing on the current environment and therefore the actual returns you receive,” said the survey.
Besides these five big mistakes, five per cent rich also cited other errors, including impatience, investing near the top of the market, adhering to recommendations from acquaintances, and paying tax on the investments unnecessarily, amongst others.
“This close weighting could suggest that, according to the respondents, all of them are almost equally as significant and costly – and therefore must be avoided,” added the survey.
“Mistakes investing can and do occur – it is how they are best avoided, or at least mitigated, that is the key to success. Learning lessons from people, like those we polled, who have overcome these common investment mistakes to go on to accumulate significant wealth in the longer-term is a way to reduce costly errors,” it concluded.
The poll is based on the inputs of millionaires in countries including the UAE, UK, US, South Africa, Hong Kong, Japan, Indonesia and Thailand.