Avoid costly investment mistakes to protect wealth

Investors, whether ordinary or wealthy, often make similar mistakes in the market. Instead of seeking to make more winning investments, it’s important to focus on making fewer errors. Market turmoil can lead to hasty decisions, which can be harmful in the long run. There are four main types of mistakes investors commonly make. These include believing false information, stepping outside one's area of expertise, letting emotions drive decisions, and not allowing investments to grow over time. Even small errors can lead to big financial problems. One significant mistake is paying excessive fees for investment management. Many high-fee options don’t provide the returns that justify their costs. For instance, some wealthy families lost billions because their managers charged high fees, while a low-cost index fund could have yielded better results over time. Another mistake is buying into popular stocks after they have already surged in value. This behavior often leads to buying high and selling low. A recent example is the ARK Innovation ETF, which performed incredibly well in 2020 but saw a severe decline afterward. Many investors who bought at its peak faced significant losses. To avoid impulsive decisions, consider setting up a small "mad-money account" for risky investments. This allows investors to take calculated risks without jeopardizing their main financial assets. When gains are substantial, deciding whether to sell, hold, or buy more can be tricky. A good approach is to think about potential regret. Selling some shares can secure wealth while still keeping a stake in future gains. Lastly, chasing high-yield investments can lead to costly mistakes. Riskier strategies, like buying low-rated bonds or using leverage, often result in losses instead of the expected higher returns. Remember, higher yield usually comes with higher risk, which can jeopardize initial investments.