Investing Mistakes Malaysians Make

John C. Maxwell, the author of the bestselling book Learning the 21 Irrefutable Laws of Leadership had this to say about mistakes. He said “A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.” Mistakes are part of life and investors are not immune from making them. Here are some of the common mistakes that you may be making. Learn from these mistakes and take steps to correct them.

Investing without a plan

As with everything, success is determined by having a clear goal and setting concrete steps to achieve that goal. You need to define your investment goals and study how best to achieve those when you invest.

Not understanding the risks

All investments carry some form of risk. Make sure you understand those risks and make a plan for what to do if your investments encounter those risks.

Not taking part in the Employee Provident Fund (EPF) investment scheme

You don’t have money to invest you say? If you are a member of the EPF and have built up yoursavings account there then you have funds to invest. The EPF actually allows members to withdraw up to a certain amount in their account 1 for investment purposes.

Having unrealistic investment goals

You say you want your RM 10,000 to become RM 5 million in 2 years.The problem is that you want to accomplish this by investing in something that returned 10% last year and even less in the previous years. That’s not going to be achievable and you’re better off lowering your investment goals. Have realistic investment goals and plan for success based on the resources that you have (i.e. how much you can invest).

Not measuring the stock’s value

Investors might be too focused on a stock’s past performance (which by the way is not always an indicator of future performance) and forget about the fundamentals behind the stock. Some stocks are trading at a discount based on its fundamentals and investors should also look for these stocks and not just focus on stocks that have performed well in terms of past returns.

Not comparing broker fees

Broker fees can add to the cost of your investment and eat away at your profits. Ask about the fees before you sign up with a broker. Berkshire Hathaway Chairman Warren Buffett, also called the “Oracle of Omaha,” recommends low-cost index funds for investors who do not have the time to do their research on the market but want their investments to mimic the broader market. Unit trusts in Malaysia that mimic the market are one option for Malaysians who want a similar approach to Buffett’s advice.

Not comparing the potential returns to interest rates

Don’t forget to keep an eye on current bank interest rates as the potential returns of your investments might not be as high as what your money could be earning if you kept it in a bank account instead.

Not investing in stocks

Legendary investor Warren Buffet is one fan of the stock market. He is quoted by USA Today as saying that “the nice thing about investing in stocks is that, over time, equities are going to do well.” Buffet recommends holding onto stocks for a long time and does not recommend investors to go into high-frequency trading.

Forgetting to diversify

Since all investment carries with it some risks, you have to diversify your investment portfolio to minimize those risks overall. Don’t limit your investments to stocks or bonds alone. Invest in other assets as well and look into the value of investing in real estate or treasuries. Also look into your options for investing overseas to further diversify your investments away from one geographic area.

Letting someone else completely run your investment

While having a fund manager can save you time and effort when it comes to managing your portfolio, don’t make the mistake of entrusting them completely with your finances. Ask questions from your fund manager about the state of your investments and get a report on how well your investments are doing. They should be able to tell you about how well your investments are doing and what your money is being invested in.

CompareHero is the leading Malaysian financial comparison platform, aimed at helping Malaysians save time and money. Visit CompareHero here.