A young woman looking at a share price history on her laptop.

Investment pitfalls

Here are eight of the biggest investment mistakes to avoid

Selling at the wrong time, losing your nerve, relying too much on gut feeling – there are lots of things that can go wrong when investing. Here are some of the pitfalls to watch out for.

Jörg Marquardt

1. Fear of shares

Only 13 per cent of Swiss households invest their money in the stock market, according to a study by the ­Organisation for Economic Co-operation and Development (OECD). Many people consider shares to be too risky, preferring to place their money in a savings account instead. Experience shows that you can earn more with shares in the long term – despite potential short-term losses. If you want to protect your savings from inflation and accumulate wealth, you should invest some of your money in shares. The longer your investment horizon, the higher the potential return.

2. Waiting for the perfect time

Like the economy, the stock market moves in cycles. Market slumps are usually followed by recovery periods. The perfect time to buy shares is when they are at their lowest and cheapest; however, this is difficult to foresee.­ The amount of time you invest for is more important than the time at which you invest – start investing as early as possible and stick with it for as long as possible. The longer you invest your money, the more wealth you can accumulate.

If share prices rise over a longer period of time, the probability of a fall increases massively.

Sacha Marienberg, Head of Investment Office at Migros Bank

3. Copycat effect

There’s a gold-rush ­mood on the stock market, share prices are rising constantly and the media are fuelling the hype: “Just buy shares quickly now to get a slice of the pie.” But you need to be careful here – if you give in to the impulse, you run the risk of lagging behind the market­. Shares that are being hyped are often already expensive, which reduces your chances of a good return – at least in the short term. If all other investors ­are keen as mustard on a share, you should find out all you can about the company and the market before buying.

4. Overconfidence

The hunt for quick returns leads people to overestimate their own abilities. Relying on the right instinct and supposedly reliable information often tempts amateur investors, in particular, to make risky share purchases. They often focus on individual shares ­that they expect to perform strongly. There’s a risk of high losses if these expectations are shattered. It’s better to spread your capital across ­various asset classes, regions, sectors and companies – by investing in a broad-based fund, for example, as this minimises the risk of losses.

5. Panic selling

In a crash, the stock market can fall by 20 per cent or more. This was last seen during the coronavirus pandemic. But even a standard market correction can involve falls of 5 to 10 per cent. In such periods, many investors tend to make a knee-jerk reaction by selling their investments for fear of further losses, losing a lot of money in the process. Markets usually recover faster than people expect after a crash. So keep a cool head and hold on to solid shares, even in difficult times.
Tip: you can avoid bad decisions by investing in professionally managed strategy funds or opting for discretionary investment management.

6. Head-in-the-sand syndrome

People feel a loss more strongly than a gain; this leads to the habit of holding on to things that have long since been lost – especially if you have already invested a lot of time, energy or money. That’s why investors keep a losing share in their portfolio for too long – in the vain hope of a turnaround. If a share performs poorly over the long term because a company’s business model is lagging behind the market, for example, you should sell it – even if this means taking a loss.

7. Double standards

Stock market psychologists have discovered that gains and losses are processed in two different “mental accounts”. When a share price rises, many investors convert the paper profits into real profits in their heads. This often prompts them to sell early in order to realise the­ actual profit. If a share falls in value, on the other hand, the paper loss is not automatically regarded as a real loss – and the investor tends to shy away from selling. To ensure your portfolio doesn’t end up consisting solely of “stock losers”, you should avoid selling “stock winners” at the first upward swing.

8. Fear of heights

“If share prices rise over a longer period of time, the probability of a fall increases massively.” This is a widespread misconception. As a result, investments tend to be sold too quickly for fear of a fall in prices instead of allowing profits to continue accumulating. If a company reaches a new all-time high at regular intervals, this is often a sign of a strong market position and good economic health.

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