An ISA can be a platform for building wealth over the long term – but that is never guaranteed. As well as making the right moves, it is important to try and avoid making the wrong ones.
Here are three mistakes I will be striving to avoid this year when making choices about what to do with my Stocks and Shares ISA.
1. Paying unnecessary costs
In a good restaurant or pub, you can get so caught up with what is going on inside that you do not pay much (or any) attention to the building itself.
An ISA can be a bit like that. Some investors focus so much on what shares to buy (or sell), or dividends coming in, that they pay scant attention to the ISA wrapper itself.
But there is a wide array of Stocks and Shares ISAs on the market and they can come with very different costs and fees. So I make sure to compare some of the options to try and make sure that I am getting what I need without spending more than I need to. I would rather the money in my ISA was used for investing, not keeping a stockbroker in clover!
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2. Trading too often
Legendary investor Warren Buffett has said his preferred holding time for a share is “forever” and indeed he has owned shares like American Express and Coca-Cola for many decades.
Another comment from Buffett that caught my eye was that he pins a large part of his success on one “truly good” decision every five years or so (and taking a long-term approach to investing).
That makes sense to me. It can be temping to keep chopping and changing the holdings in an ISA. But brilliantly successful investors like Buffett typically focus on buying stakes in outstanding companies and holding them for the long run.
3. Focusing too much on one share
One of the more interesting moves Buffett made last year was selling a significant chunk of his Apple (NASDAQ: AAPL) shares.
The reasons for that are not entirely clear, but one benefit is that it means his portfolio is now more diversified than it was before the sale.
Apple has been a phenomenally successful investment for Buffett, with his stake increasing in value by tens of billions of pounds since he bought it.
A lot of what has helped the share do well is still true. Apple has a strong brand, large customer base and proprietary technology that can help set it apart from rivals. No wonder it is massively profitable.
But – and I have seen this happen to shares in my ISA before – one risk of owning a great share is that it is indeed a great share. That can attract other investors, pushing the price up and meaning that the one share increasingly comes to dominate a portfolio.
That might not sound like a problem – but what happens if the price suddenly falls? Apple faces risks such as lower cost Asian competitors eating into its market share in developing countries. All shares face risks.
It is possible to have too much of a good thing when it comes to investing. That is why I like to keep my ISA diversified.
This post was originally published on Motley Fool
