The Finance

Expatriate tax and finances

Investment Blunders: most common mistakes that are easy to fall into.

The following are the most frequent errors that we come across with private investors. They are not technical trading blunders, just simply areas that need consideration as you put together your long term financial plans.

1: Not thinking an investment through. Investments need to form part of a long term plan with concrete goals, simply investing on a knee jerk reaction in an effort to make some capital gains is fundamentally flawed as this is just one tactic when you should be look for an overall strategy. Think of the war, not just the battle!

2: Hot Stocks. We all have a buddy who made a killing on the latest biotech stock and swears by his next stock pick. Investing in individual stocks is a massive risk for the majority of individual investors. To mitigate risk you need to diversify your assets and investment styles, making mutual funds and the like far more attractive for the average guy trying to put some money aside.

3: Don’t focus on the headlines. Many private investors look at recent stock prices and take their decision based on nothing more that seeing some positive share price behaviour and liking the company. Look behind the numbers, be sure that you are happy that any money you contribute will be rewarded according to the risk you are taking and don’t assume that share prices will always rise.

4: Paying over the odds. Investment capital chases the opportunity where it is most productive, generally driving up its price, but not always its true value. Many investors are keen to hop onto the bandwagon but don’t think things through in relation to long term strategy. Recent asset performance is no guarantee of long term trends and those that join a trend slightly late can easily end up buying high and then, when there is a negative move in the market, even though it may be short term, unloading their holdings at a loss. An experienced investor will know when to cut their losses from an investment but too many people don’t have the tenacity to ride out market trends.

5: Churning. This is the so called practice of over trading, sounds strange but for the smaller investor this is a real factor. Constantly moving funds in and out of one investment or another or switching between asset classes simply eats into your margins. All these transactions will come at a cost and impact on the cumulative effect of your investment gains. If it ain’t broke, don’t fix it!

6: Tips. We all hear about the latest attack in the Delta and look to the oil price jump, thinking we could get in on this (there’s no doubt that those truly in the know have already taken their positions well before the attacks). Don’t be tempted though, investment professionals with teams of research analysts are paid vast sums to beat the smaller investor to the punch and you can easily end up in a late position which will cost your dearly.

7: Be patient! It is vital to take a long term view to any investment plan. There are and always will be market fluctuations in every sector. Be sensible and only risk capital that you know you do not immediately need and don’t let every external shock to a market shake you off your strategy. Be realistic with your projections and don’t overshoot, your long term plans depend on keeping a cool head in the short term.

8: Burying your head in the sand. Many people don’t get their long term assets lined up either because they don’t know how to start or simply aren’t comfortable with the idea of investing or may have taken a hit on a previous investment. My answer is always the same, this is you and your family’s future comfort, not investing or managing your assets can put this massively at risk. Ignoring an investment opportunity, as I highlighted in a previous article, even for a year can make a massive difference in the long term.

9: Risk. Don’t wait for a market drop to decide how you feel about it, tackle it at the start of your plan. Be aware of all the elements involved in your investments and the longer time frame you have for an investment, the riskier you can be. Be clear with your adviser about this and agree on any strategy before you start it.

10: Tax. Be aware and take professional advice! As offshore individuals you have a massive range of investment options open to you, far more than is available simply onshore. Each investment type or structure can have tax implications, look into this thoroughly as it will impact on the performance of your investment and it is every invester’s obligation to be aware of their tax liabilities. On the flip side, don’t hold an asset just for fear of the tax it may create and don’t be afraid to ask for outside help.

Of course, these are just some ideas that you should bear in mind when considering your long term wealth management and many of them are common sense or overlap. We all want to retire early and live well and with a little planning, it’s not so hard to achieve. If you want to talk to the finance guy, you can find him in any of the established watering holes of Lagos or PH!

All future correspondance with be handled directly by the author. We will have no involvement in your financial matters or queries.