What's the biggest mistake made by millionaire investors?

We can all learn from the insights of those who take unnecessary risks with their fortunes

What's the biggest mistake made by millionaire investors?
Steve Randall

Even those who have been successful enough to build a seven-figure fortune take risks that will make advisors wince.

A survey of millionaires has revealed that the biggest mistakes they have made with their investments, with relying on historical returns topping the list.

Almost 4 in 10 respondents to the poll by global financial advisory deVere Group said they had made this error prior to becoming the firm’s clients.

The firm’s CEO Nigel Green says that the admission of reliance on historical returns shows that high-net-worth individuals are keen to avoid such mistakes again, especially with the dramatic changes in the world during 2020.

“With fundamental shifts in economies and the markets, the often-quoted industry phrase ‘past performance is not a reliable indicator of future performance’ has perhaps never rung more true than it does today,” he said.

Wealthy investors recognise the need to adapt to new investing strategies in the new era we are in and that includes speaking to a financial advisor with the not seeking advice revealed as the second most common mistake of millionaires.

“It’s encouraging that seeking advice is deemed fundamental to success by millionaires as it shows that DIY investing and not having a regularly reviewed plan is, typically, a path full of costly pitfalls,” added Green.

Diversification is a must
Poll respondents said that lacking diversification in their portfolio was their third biggest mistake.

“The lack of diversification was in some ways bound to make the top three,” said Green. “Why? Because it is universally regarded as an investor’s best tool to mitigate risks and capitalise on opportunities that arise.”

Green concluded that with some clear errors made by investors, some may believe that it would be better not to invest rather than risk hard-earned cash.

“Yet nothing could be further from the truth – not investing is likely to be more dangerous to your wealth over the longer-term,” he said. “This is shown by the fact that most of the world’s wealthiest people are themselves committed investors.”