Why do 90 per cent of investors get below average returns on their investments? Well, there are many reasons, but because as human beings we are inherently emotional, it is psychologically tough to stick with an investment strategy.
The volatile markets that we have had this summer often cause investors to make the wrong financial decisions as emotions take over from sound investment principles.
Fear can sometimes take over when the tabloid headlines talk of market panic but successful investors see market corrections as an opportunity not a threat.
We have seen a number of people take advantage of the market falls in recent days by increasing the amounts that they have invested. We all know that we should try to buy low and sell high but that is not an easy thing to do.
One of the key factors in having a successful investment strategy is maintaining a sufficient amount of liquid cash in deposit accounts to that it is never necessary to sell an investment when the market is low.
Some advisers suggest £10,000 as a minimum amount to hold in a cash reserve, others may suggest 12 months spending. Diversification is another key factor in a successful investment strategy. The old adage of not putting all your eggs in one basket still holds true. Proper diversification involves investing in different asset classes such as gilts, corporate bonds, commercial property and gold as well as stock markets all around the world.
David Hill is a chartered financial planner and independent financial adviser at Hills Financial Planning, 15 Agnew Street, Larne (www.hillsfinancialplanning.co.uk)