Poor portfolio diversification top mistake by HNWIs: deVere

Added 19th May 2016

The mistake made most often by high net worth investors, prior to seeking financial advice, was failing to properly diversify their portfolios, according to an international poll by deVere Group.

Poor portfolio diversification top mistake by HNWIs: deVere

Just over a quarter (27%) admitted to having made this mistake, with 23% feeling that they did not start to invest early enough.

A fifth (20%) of the 652 deVere clients surveyed focused too much on the short-term, while 15% admitted to being emotional about their investments.

With investable assets of more than £1m ($1.4m, €1.28m), 8% admitted to not keep enough cash in reserve.

Spread across the UK, Asia, Africa, the Middle East, and the US; 7% of those surveyed did not know what, if any, mistakes they had made or did not respond.

Mistakes get made

Nigel Green, chief executive and founder of deVere Group, said: “All serious investors, including myself, have made previous investment mistakes that could have been easily avoided. 

“Typically, a short-term investment strategy involves considerably higher risks, compared to investing over a longer period."

“It is almost universally recognised that seeking professional independent financial advice allows you to avoid most of the common mistakes that have been flagged up by high net worth investors in this poll.”

Perilous journey

While the above admissions could make it sound like investing is somewhat perilous, it could not be further from the truth, Green said.

“Not investing is probably more dangerous over the longer term. This is evidenced by the fact that most of the world’s wealthiest people are themselves dedicated investors. It is just a question of being sensible, taking proper advice and, where possible, learning lessons from others to avoid the obvious mistakes. This is why we conducted this poll.”

Referring to the poll’s results, he said: “Ensuring your portfolio is properly diversified is one of the fundamentals of successful investing. Yet it is surprising how many people fail to do this. Having a well-diversified portfolio across asset classes, sectors and regions means you are best-placed to mitigate risks and best-placed to take advantage of important opportunities."

Short horizons

Of focusing too much on the short term, Greed added: “Typically, a short term investment strategy involves considerably higher risks, compared to investing over a longer period. Other pitfalls of a short horizon include that investors can often sell a quality investment too early due to over focusing on short term valuation metrics.

“Alternatively, they may sell an investment if it drops in the short term, meaning that they would then miss out on it potentially growing steadily in the longer term with increasing returns.

“Stock market performance is fairly predictable over the longer-term – they usually go up. For this reason, investing in equities is recognised globally as one of the optimum ways to accumulate wealth over long periods. If you put off investing you are likely to miss out on the long-term benefits you could have been gaining.”

Objectivity is key

“Making decisions based on heartfelt emotions and loyalty are admirable traits in most parts of life – but not when it comes to investing. Investment decisions based on pure emotions, such as fear, greed, or the desire to follow the crowd, amongst others, can be disastrous. Objectivity is key. 

“Finally, not having kept some powder dry is another common error highlighted by many investors. It is always advisable to have some cash at the ready and be prepared to use it should a clear trend and/or opportunity present it itself,” Green concluded. 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 


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