Why it's a bad idea to chop and change your investments

Galileo Capital's Warren Ingram shares investment advice on The Money Show.

When stock markets are not going their way, people can fall into the trap of chopping and changing their investments.

This is often a terrible idea and the reason our investments perform worse than they should, says certified financial planner Warren Ingram.

"When, for example, there's a big stock market crash or there's political upheaval like right now, people want to know 'what's the plan, what should I do to stop my investments losing more money' - and very often the best answer you can give is to sit on your hands and not do anything."

Warren Ingram, Director - Galileo Capital

"With the benefit of hindsight, when we look back and analyse what's happened, we tend to collectively as investors make the biggest mistakes at the same time, and we do it repeatedly."

Warren Ingram, Director - Galileo Capital

What investors tend to do is to switch to the funds that performed really well last year in anticipation that they will perform well again this year, Ingram says.

But when they sell out of the funds that performed poorly before, it's normally the worst performers that deliver better growth in the next year.

"Sadly, investors do this almost every year, and it costs them nearly half of the growth that they could be earning from their investments."

Warren Ingram, Director - Galileo Capital

While the temptation to switch is understandable, we need to resist the urge to make a change, Ingram emphasizes.

Look at the bigger picture and understand why your stock has underperformed, he says.

Investors are often advised to buy a large spread of different assets across a range of markets. 

Remember that diversification means that some of your investments are not going to do well; in fact, some might lose money while other parts are making money - and that is a good thing, Ingram says.

He urges investors to 'avoid the noise'.

"A long-term strategy is going to be your best bet; it gives you protection from short-term noise."

Warren Ingram, Director - Galileo Capital

Proper diversification and a long-term focus will be your best antidote to uncertainty.

"Owning a diversified portfolio that does not perform well for a year or two, should be a badge of progress - it means you can tolerate losses and will give yourself the best chance of participating in the recovery."

Warren Ingram, Director - Galileo Capital

Listen to Ingram's detailed advice in the interview audio at the top of the article