05 Jun, 2014
Millionaires reveal their top five past
The top five most common mistakes made by millionaires are failing
to diversify, investing without a plan, making emotional decisions,
failing to review a portfolio, and placing too much focus on
previous returns, finds a poll by one of the world's largest
independent financial advisory organisations.
In the global deVere Group survey of 880 high-net-worth clients,
when asked to reveal their number one investing mistake before
seeking professional advice from deVere, 23 per cent cited failing
to adequately diversify their portfolio.
22 per cent responded investing without a plan, 20 per cent said
it was making emotional decisions, 16 per cent answered failing to
regularly review the portfolio, and 14 per cent claimed it was
focusing too heavily on the history of an investment's returns. 5
per cent cited other errors, including impatience, investing near
the top of the market, adhering to recommendations from
acquaintances, and paying tax on the investments unnecessarily,
Those polled by the organisation, which has more than 80,000
clients worldwide, are based in the U.K., the U.S., South Africa,
Hong Kong, Japan, the UAE, Indonesia and Thailand and have
investable assets of more than £1m.
Of the survey, Nigel Green, deVere's founder and chief executive,
observes: "Interestingly, there are minimal differences between the
top five most common investment mistakes previously made by
"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."
On the breakdown of the poll, he continues: "As the survey
highlights, failure to diversify a portfolio is widely regarded as
one of the most common investment pitfalls. Spreading your money
around is a vital tool to manage risk. However, it must be used
correctly. Diversification will only add real value if the new
asset has a different risk profile.
"The poll underscores how 22 per cent of today's millionaires have
also in the past fallen into the all-too-familiar trap of randomly
investing, or investing without a structured, robust plan. Anyone
who has an investment plan can expect their portfolio to outperform
those without a plan. To my mind, unless you have a sound
investment plan you are gambling, not investing.
"Most decisions in life are emotional to some degree but making
excessively emotional decisions can prove deadly when it comes to
investments because they are blighted by prejudices and biases.
Working with an independent financial adviser is one recommended
way to help take excessive emotion out of the equation.
"16 per cent of respondents cited that failure to review their
portfolio on a regular basis was their number one investment
mistake. This is not surprising as even the best portfolios can go
off-target over time. Investments need to be reviewed and
potentially rebalanced at least annually, preferably more often, to
ensure they still deserve their place in the portfolio and that
they are still on track to reach your long-term financial
"Additionally, 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."
deVere Group's CEO concludes: "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.
"Due to the complexities of investing and the potentially
devastating effects of committing expensive avoidable errors, the
best thing to do is to seek advice from a professional independent
financial adviser who will help circumnavigate the common and
not-so-common pitfalls. Avoiding just one of these mistakes - and
there are many others - can literally make the difference between
poverty and financial freedom."