I think a SIPP can be an excellent way to try and build wealth ahead of retirement, which is why I invest in one.
But while a SIPP can hopefully help me make money, some mistakes along the way could also cost me.
Here are four errors I am hoping to avoid in 2025 (and always!)
Ignoring the ‘small’ costs
Different SIPPS come with their own cost and fee structures.
As the amount in a SIPP grows, such costs may seem like a fairly small proportion of the amount invested. But it is important to remember that a SIPP is a long-term investment vehicle.
While 1% or 2% (or even 0.5%) might not sound much this year or next year, over the course of three or four decades a small annual levy can add up to a huge amount.
So I am paying attention right now to whether my SIPP provider offers me good value for money.
Lacking an investment strategy
Another mistake I am trying to avoid is investing without a strategy.
That does not need to be a formal plan. It need not be complicated. But I reckon it is important to sit down and think about how I hope to grow the value of my SIPP.
For example, what is the right balance of growth and income shares? How much of the SIPP do I want to invest and how much will I keep in cash at any one time (if any)? Are markets beyond the UK potentially more attractive for me?
My point here is not about the specifics of my strategy, but rather than by developing an approach and adapting it as I go I hope to try and miss out on some avoidable errors.
For example, I would not want to miss out on a huge surge in growth shares because I was 100% focused on dividend shares.
Not diversifying enough
That brings me to another error: not spreading a SIPP across enough shares.
As most seasoned investors know, even the most brilliant share can suddenly tank unexpectedly.
That hurts financially – but even more so if its role in a SIPP is too large relative to other holdings.
Not learning from mistakes
It is easy to revel in great investments. But what about lousy ones?
A lot of us like to forget about them. But I think that can be costly, as it means we may just make similar errors in future.
For example, one of the worst performers in my SIPP is boohoo (LSE: BOO). From MFI to Superdry, I have owned quite a few awful retail shares. So although I still invest in the sector, I am wary.
What was my key mistake with boohoo?
I think one was ignoring the market signal: a massive price decrease before I bought was not the bargain I hoped. Rather, it was other investors signalling their declining confidence in the retailer’s prospects.
I thought past profitability equated to a proven business model. But – and I know this – past performance is not necessarily a guide to what will happen in future. Competition from the likes of Shein changed boohoo’s marketplace dramatically.
I still own the shares and hope boohoo’s large customer base and strong brands can help it recover. But I have learnt a hard lesson!
This post was originally published on Motley Fool
