10 investment mistakes to avoid this ISA season

Investing can be much more straightforward than many believe.

By following a simple set of rules and avoiding the pitfalls even the most inexperienced investor could become a successful investor.

Here, then, are 10 top mistakes investors should avoid in order to help boost their portfolios:

Putting too many of your eggs in one basket

Every investor has to start somewhere and, to begin with, this will often involve buying one share or fund. Ensuring you pick a global fund provides diversification at the start of your investing career.

As the portfolio grows, so does the need to diversify. Being successfully diversified means investors should have exposure to bonds, shares, property and commodities, as well as a spread across the world and different areas of business, from shops to healthcare to technology.

To achieve this, a portfolio should have no more than 10% in any one fund and hold between 10 and 20 funds.

Not using your tax breaks

The golden rule for any investor - new and experienced - is always to take advantage of your annual tax wrappers, such as the ISA and pension allowance.

Investing is about getting rich slowly. Gambling is for those looking to get rich quick - but risk their whole stake.Any investment held in an ISA will not incur any capital gains tax on capital growth, nor is there further tax to pay on income generated by share investments.

Contributions to a pension, meanwhile, can mean you benefit from income tax relief at your marginal rate, possibly more.

You can put a wide variety of asset classes into your ISA, including individual shares, funds, gilts (government bonds) and corporate bonds. The ISA allowance until 5 April is £15,240.

From the 6 April you will also get a new ISA allowance of £15,240.

Having high expectations

Many investors make their first investment hoping to beat the market and make huge returns. They try to pick the one stock looking to turn their £1,000 into £10,000 overnight (a 10-bagger).

The reality is much more prosaic. Investing is about getting rich slowly, whilst gambling is for those looking to get rich quick, but willing to risk losing all their stake.

Not looking after your portfolio

Over time, your portfolio should, and will, change shape. Different investments will perform at different times, with some growing faster, while others may fall in value.

Investors are driven by human behaviour and often sell only after the market fallsIn addition, the world does not stand still; fund managers change jobs, personal circumstances also change. As such, your attitude to risk changes and the suitability of funds needs reviewing.

Review your portfolio at least once a year to make sure your holdings are still right for you. Ideally do this at the same time as you are considering investing new money.

Some investments may require more attention - individual shares, for example.

Following the herd

This is probably the biggest mistake all investors make, whether they are professional or otherwise.

A rising stockmarket builds confidence and more people invest as they see the returns others are getting. The result is that investors end up buying when the market is high.

Ignore short-term noise and focus on your goals and longer-term objectives. Invest for the future and not based on past performance.

Trying to time the market

Trying to time the market is almost impossible and even the most experienced investors get the timing wrong.

In the last 10 years, an investor who reinvested dividends in the FTSE would have got a 46.54% returnInvestors are driven by human behaviour and often sell only after the market has fallen, when they are at their most cautious or fearful.

It often takes a long time for confidence to return and investors usually only come back after the market has recovered.

Trying to time the market requires getting a lot of decisions right. Instead, you should focus on the longer term, as, over time, the short-term volatility of markets is smoothed away. Investing is for the longer term.

Not recognising your investment mistakes

One of the most difficult things to admit in investing is that you got it wrong and made a mistake.

However, if you are able to sell a poor investment before it gets worse, you will preserve your money and may be able to reinvest into a better investment. Likewise, no-one ever lost money taking a profit.

The best fund managers recognise their mistakes quickly and get out, they also sell their successes once they think the investment has become expensive, even though the share price might continue to rise.

Not reinvesting dividends

Dividends continue to be under-appreciated by investors. Companies that pay dividends tend to be well managed, have good cash flow and are more shareholder-friendly.

Focus on the valuation of a business, not its popularityIn the last 10 years, an investor who reinvested dividends in the FTSE would have got a 46.54% return, whilst one who didn't reinvest dividends would have seen their capital rise by only 1.54% (although they would have got some income each year).

Making new investment decisions in isolation

Pundits and commentators do not judge a fund with your portfolio in mind, but on its own merits. It is important for you to consider any new investment in the context of your other investments.

If you don't, you could end up with a very risky portfolio which is biased to a particular asset class, sector or full of high-risk smaller companies.

Following a trend or fad

Investing is full of trends and certain investments go in and out of fashion.

For example, mining shares have been unpopular for several years and have been shunned by investors, whilst, over the past few years, biotechnology companies had been the flavour of the month.

The trouble with chasing trends is that you need to know when to get out - you don't want to be the last one out as all you'll do is end up losing money. Focus instead on the valuation of a business, not its popularity.

Adrian Lowcock is head of investing at Axa Self Investor.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.