Certain investing mistakes are costing people more money in the long run, an expert has warned.
Tim Bennett, head of education at wealth management firm Killik & Co shared three “common” errors Britons are making that are causing them to lose out on their expected returns.
Saving rather than investing
Mr Bennett said: “The difference between these two keywords is simple – saving is putting cash away, whereas investing is all about buying and holding securities, such as bonds and equities.”
The problem with confusing the two is it can lead to people keeping too much cash to one side and underinvesting. Over time, Mr Bennett said: “This leads to inflation-driven wealth erosion.
“That is why investors should set out a strategy for cash holdings which involves creating a ‘rainy day’ cash reserve, setting aside any further amounts needed for known future calls on capital and then investing everything else.
Paying the wrong fees
While it’s crucial for investors to minimise fees because of the potential “drag” on wealth accumulation, Mr Bennett argues that investors should prioritise getting value for their money.
He explained: “By all means, automate a simple stocks and shares ISA plan via an app at a low cost, but make sure you know what is ‘under the bonnet’ when it comes to likely future performance.
“As for those more complicated areas, such as cash flow modelling across multiple goals, don’t scrimp too much on the quality of advice you seek.”
In short, Mr Bennett suggested people should weigh up at least three issues, including:
- What sort of help is appropriate for my age and life stage?
- Should I be using an active approach, a passive one, or a bit of both?
- Am I equipped for a DIY approach and, if not, where will I go for further support?
Mr Bennett added: “Remember, cheap isn’t always cheerful in financial services terms, any more than it is when it comes to choosing a restaurant. Taking the time to consider if you are getting value for money is essential.”
