Investing in the market without knowing what and when you are going to use it is just like initiating a journey without a destination. It becomes difficult to decide on the correct amount of risk, and even more difficult to determine where to take profit or exit in a loss.

How to avoid: Give every investment a job, such as an emergency fund, a house deposit in five years, or retirement at 60, and attach a rough amount and date. Once each goal has a label and a timeline, it becomes easier to match safer options to near-term needs and growth investments to long-term plans.

Most investors are obsessed with returns and remain oblivious to the trickle away of high prices, trading expenses, and unwarranted tax invoices. Even minor percentages will accumulate to huge amounts, even when silent.

How to avoid: Be careful of what you are paying: fund expense ratios, the spreads paid to brokers, and advisory fees are all important. Select a cheap, most diversified alternative where available and think about maintaining an investment long enough to be taxed more favourably in the country of your residence.

Some investors purchase volatile assets using the money they need immediately, whereas others save their cash in form and allow inflation to erode it. In either instance, the risk fails to correspond to the actuality of the objective.

How to avoid: Begin by asking two questions: when do you really need this money, and how volatile can you be comfortable taking? Keep short-term money in less risky and more liquid investments and leave long-term money in a market to grow.

Fear causes investors to sell when prices fall sharply, and excitement causes them to commit more than they originally planned when the market is on a rally. In the long term, responding to each emotional outburst may be more expensive than any one stock crash.

How to avoid: You need to write your strategy on a quiet day, your objectives, timeframes, and target mix and use it as your anchor during the noisy days in the markets. When prices are fluctuating, run that plan through first, and when you do anything, take small steps and be intentional about them rather than making big all-in or all-out moves.

Once everyone is talking about something, whether it is hot tech names or the latest coin, it is tempting to jump into the fray, particularly after a massive run-up. Investors who fall for this temptation typically buy during the hype, get hurt on downfalls, and sell in frustration.

How to avoid: To avoid this, a more robust approach would be to create a core portfolio which is diversified and hold any ambitious ideas as a small side position. Become invested during the good times and the bad times with consistent donations rather than attempting to enter and exit according to the headlines or hunch.

Putting most of your wealth into a single stock, sector, or country can feel bold when things are going well. However, when that single sector fails, your whole plan can get derailed for several years.

How to avoid: Diversify your investments to a variety of assets and locations to ensure that there is not just one failure that would make it all go down. There will be bad times and good times, but diversification will make the disasters which are painful, not devastating.

On the one hand, overtrading is a bad habit; however, on the other hand, it is also dangerous not to check on your portfolio. Life evolves, objectives change, and markets relocate, leaving your investments not in tandem with what you actually require.

How to avoid: To ensure that you still have a mix that makes sense, set aside a simple annual review to determine whether your goals, time horizons or income have evolved. Take that opportunity to rebalance when an asset has become excessively large, and to reduce risk progressively as objectives become near.

The Daily Breakdown Team