8 sure-fire ways to lose all your money

The key to growing your wealth is your investment strategy. Get it right and you should see the value of your pension fund, and other holdings, rise steadily.

Get it wrong, however, and you’re looking at a different scenario of not having the money to do what you want in retirement, and potentially outliving your pension savings.

There are many ways of losing some of, or even all, your money. Here are eight of the most common – and avoidable.

1. Overcomplicating your investments

Investing money should be straightforward, but there’s a tendency for many people to try and overcomplicate it.

Investment companies, and other financial institutions, devise different investment structures and products and make outlandish claims about them that can often owe more to wishful thinking than reality.

Think back to the investment crash of 2007/08, which prompted the worst worldwide recession since the 1930s.

It’s been suggested that one of the key contributory factors was that the financial regulators didn’t understand the products they were supposed to be policing. “Credit Default Swaps”, anyone?

Because of that, they maybe didn’t ask the right questions and, almost inevitably in retrospect, the whole edifice came crashing down.

If you don’t understand what you’re investing in, you’re liable to lose your money.

2. Putting all your eggs in one basket

An aunt of mine always drove the rest of the family to distraction every year by betting on up to 10 horses in the Grand National, rather than sticking a pin in the list like the rest of us.

Little did she, or I, know that she was teaching me my first investment lesson – the importance of a diversified portfolio.

Judging by the frequent media reports of someone losing their life savings because of a risky investment, it’s clear that many people still don’t heed that lesson.

Too much focus on one sector or region can leave you badly exposed in the event of a sudden market downturn.

Spreading your investments across sectors means that you should be better positioned to withstand losses in one area because of potential growth in another.

3. Betting on the home team too much

A variant of “putting all your eggs in one basket” is known as “home bias”.

It’s an inevitable effect of people feeling most comfortable with the names and companies they recognise in their own economy. They do this even when clear signs are telling them that diversifying their investment portfolio would probably be a more prudent and lucrative step.

As well as diversifying your investments into different sectors, you should also look for a good geographic spread.

4. Following “star” investment managers

In my lifetime, the biggest investment star – who attracted money to his funds because of his name rather than what they were investing in – was Neil Woodford.

He produced some remarkable returns managing two income funds at Invesco Perpetual. His contrarian approach to investing was eye-catching and suited the times.

A lot of his investors followed him when he set up his own investment company in 2014. However, he was unable to repeat the same trick and, by 2019, he was announcing the closure of the company, with many people suffering severe losses.

Leave following stars to the Three Wise Men and, instead, look for investment options designed to fulfil your needs.

5. Trusting recommended investment lists

Some well-known financial institutions set great store by their recommended “top-fund” lists.

While there’ll be an element of in-house research around these, you should always bear in mind that such institutions will charge you to invest in those funds via their particular platform. This means they have a direct financial interest in you investing in these funds ahead of others that could be both cheaper and equally appropriate to your needs.

On the same lines, you should also be cautious of investment advice and tips you read in the press or see online.

6. Investing in cryptocurrency

Warning: The Financial Conduct Authority does not regulate Cryptocurrency

While researching this article I went looking for a straightforward explanation of how cryptocurrency worked. I have to confess, it was not an easy task.

For example, an article in one of the UK broadsheets used words like “anonymous” and “uncrackable code” in the first three paragraphs. This didn’t fill me with confidence, and should raise warning flags for you.

If you’re investing for your future, you don’t want to read words like that in an article about a potential investment opportunity.

Furthermore, you don’t have to be a conspiracy theorist to start wondering what sort of person is going to be attracted to an investment option specifically because they don’t have to use their own name.

Investments should be transparent and easy to understand, not hidden behind walls of complexity and anonymity.

Cryptocurrency is a speculative investment which is very high risk and is not regulated by the Financial Conduct Authority.

Cryptocurrency investments are not suitable for most investors and anyone considering this investment should make themselves aware of the underlying risk before embarking on any course of action, your Capital at risk and you may lose some or all your money.

7. Over-managing your investments

A fellow financial adviser once came up with a great line to the effect that “growth on an investment portfolio is often in inverse proportion to the number of times you check the value”.

Clearly, he was exaggerating for effect, but there’s a big element of truth in what he was saying.

By checking your portfolio weekly, or even monthly, you’re likely to overact to sudden changes that are, in reality, no more than the standard fluctuation you see in most investment markets.

Of course, you should review your portfolio at some stage. I usually recommend an annual review while you’re focused on growing your funds, and then more regular checks as you get closer to your planned retirement date.

8. Not getting advice

Research carried out by the International Longevity Centre has shown that those who take advice are, on average, more than £47,000 better off than those that don’t.

Leading investment fund managers, Vanguard Asset Management, have quantified the value of investment advice to be worth as much as 3% net each year.

Some investors do adopt a DIY approach to their portfolio – and good luck to them if they’re prepared to adopt that approach.

But serious investing takes hours of research, financial analysis, and a good head for figures. Unless you’re prepared to devote the time and effort required, you’re much better off trusting investment experts to manage your money.

Get in touch

To find out more about how you should go about investing your money, please give me a call on 07769 156 250.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate school fees planning, taxation & Trust advice and Will writing.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

For information purposes only and does not constitute advice or a personalised recommendation.