Investment Mistakes to Avoid

Tips: Common Errors Made by Do-It-Yourself Investors That Can Dilute Their Returns

- Marius Fenwick

This is a follow-up article to the one in which I highlighted some of the common mistakes made by investors managing their own investments. These are the next five common mistakes investors make.

Misunderstanding Taxes
Various taxes are involved, not only across different asset classes but also within different investment types. Taxes range from the tax deductibility of contributions to retirement annuities (RAs) to tax-free returns on tax-free savings (TFS) investments and income from interest and bonds, which are taxed as regular income.

When funds are structured as "roll-up" funds, these taxes are not paid annually but only when the funds are sold, at which point capital gains tax (CGT) applies.

This is because the interest component is "rolled up" into the unit price of the fund, and CGT becomes payable on the capital appreciation of the asset.

One of the biggest mistakes is using the declared return of high-interest funds, such as income funds, for long-term projections, ignoring the reduction in yield due to taxes.

When these funds are held in TFS and RA funds, the full return can be used in the calculations since they are tax-exempt.

Too Many Administrators