With its rewards, however, investing can also be challenging and confusing. Whether you dream of a new house or an investment property, money for your children’s education or the comfort of security and freedom in retirement – understanding the principles of good investing is the foundation of achieving your financial goals. Achieving these goals shouldn’t be luck. It requires commitment, research and patience, to ensure the outcome will be anything but uncertain. And, as with most things, you should plan ahead before you start.
1. Rear-view mirror investing
Making investment decisions based on past performance is a high-risk strategy at the best of times, and we never recommend it.
2. Lack of portfolio diversification
As this Report shows, all asset classes are vulnerable to the vagaries of the market. Having a narrowly
focused portfolio by putting all your eggs in one or two asset classes exposes investors to a lot of
unnecessary downside risk.
3. Reliance on residential property
The only way to avoid the considerable downside risk of single-asset investing is true diversification across asset types.
4. Investing in over-priced traditional assets
The potential benefits of greater diversification and active management become all the more meaningful the lower the expected market returns.
5. Setting and forgetting
Instead of a ‘set and forget’ approach which relies on a steady-state, unchanging market environment,
investors faced with volatile markets will require a nimble approach, shifting between asset classes and sub-asset classes in real time as market conditions change.
UBS published its latest global real estate “bubble index” on Thursday, listing the major cities most at risk of housing bubbles.
Concerns over asset bubbles have regained steam as improved world economic growth, low unemployment and ultra-low interest rates have pushed up asset values
"Bubble risk seems greatest in Toronto, where it has increased significantly in the last year. Stockholm, Munich, Vancouver, Sydney, London and Hong Kong all remain in risk territory"
UBS noted that Toronto and Vancouver weren’t “dragged down” by the global financial crisis, as a weaker Canadian dollar cushioned the blow. “Overly loose monetary policy, for too long, in addition to buoyant foreign demand, unmoored their housing markets from economic fundamentals—and both markets are now in bubble risk territory.”
“A strengthening Canadian dollar and further interest rate hikes would end the party,”
UBS Global Real Estate Bubble Index