Millionaires' Most Common Investment Mistakes

June 12, 2014
Laura Joszt

Failing to adequately diversify a portfolio is the most common investing mistake high-net-worth individuals made before they finally sought professional advice.

Failing to adequately diversify a portfolio is the most common investing mistake high-net-worth individuals made before they finally sought professional advice, according to a new survey.

The global deVere Group survey included responses from 800 high-net-worth clients. Based on the results, there are minimal differences between the top 5 mistakes made by millionaires before they sought help.

The most common mistakes millionaires made are:

1. Failing to diversify (23%)

2. Investing without a plan (22%)

3. Making emotional decisions (20%)

4. Failing to review a portfolio (16%)

5. Placing too much focus on previous returns (14%)

“Spreading your money around is a vital tool to manage risk,” Nigel Green, deVere’s founder and chief executive officer, said in a statement. “However, it must be used correctly. Diversification will only add real value if the new asset has a different risk profile.”

Many of the issues investors made before seeking professional help can be remedied with the right financial advisor, who can provide a structured robust plan, help remove excessive emotion when making decisions, and ensure a portfolio is properly balanced.

Other errors, cited by 5% of respondents, included impatience, investing near the top of the market, adhering to recommendations from acquaintances, and paying unnecessary tax on investments.

The survey’s respondents were based in the United Kingdom, the United States, South Africa, Hong Kong, Japan, the United Arab Emirates, Indonesia, and Thailand, and have investable assets of more than $1.6 million.

The key to investment success is to avoid or mitigate the damage from an investing mistake by learning from those who overcame those mistakes in the past, according to Green.

"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,” he said. “Avoiding just one of these mistakes—and there are many others—can literally make the difference between poverty and financial freedom."