Managing your own investments can be satisfying. You pick the funds, track progress, and feel in control. The catch is that small missteps can quietly add up. A portfolio that leans too heavily on a few ideas, a rushed trade after a scary headline, or holdings left outside the right tax wrapper can erode long-term results.
Below are the pitfalls we see most often, with practical ways to sidestep each so more of your money works for you. Many of these may already be on your radar, but it’s always worth revisiting the basics. Even experienced investors benefit from a reminder of how small details can make a big difference over time.
Four common pitfalls to watch for
1. Concentration that masquerades as diversification
Owning several funds or shares isn’t the same as being diversified. If they all focus on the same sector or region, one setback can hit everything at once. Diversification spreads risk across different assets and markets, so one disappointment doesn’t necessarily derail your plan. For a clear refresher on how wrappers and diversified holdings fit together, MoneyHelper’s guide to stocks and shares ISAs is a useful starting point.
2. Emotional buying and selling
It’s natural to feel tempted to chase what’s rising or to sell during a dip. The FCA’s recent research into trading apps found that certain design features can nudge people toward more frequent, higher-risk trading, which is often linked with poorer outcomes. A pause and a plan usually beat a push notification.
3. Missing out on tax wrappers
Tax can quietly eat into returns over time. Every pound you pay in Capital Gains Tax or dividend tax is money that’s no longer compounding for your future, which means growth slows without you even noticing. ISAs (Individual Savings Accounts) shelter growth and income from UK tax, with a £20,000 annual allowance you can spread money across different types of ISA each tax year.
If you hold investments outside wrappers, even modest gains or dividend payments can become taxable. GOV.UK has clear guidance on how ISAs work, the Capital Gains Tax annual exempt amount of £3,000, and how dividends are taxed, including the current £500 dividend allowance.
4. Overtrading
Activity can feel like progress, but more trades don’t automatically mean better results. A classic study of individual investors from The Journal of Finance found that frequent traders tended to underperform the market by a wide margin. It’s old but still instructive: trading for the sake of it can be costly.
Note: These mistakes often appear together when markets feel stressful, which brings us to a situation many investors recognise.
A scenario you might recognise:
Markets drop. You sell to “stop the bleeding.” Weeks later, prices recover and you’re still on the sidelines. You avoided some of the fall yet missed the rebound. It’s a common pattern, and a better approach is to set the right level of risk in advance, keeping a cash buffer for near-term needs, and staying invested according to your plan.
That’s why managing emotions is just as important as choosing investments.
Emotional investing: Simple ways to stay steady
You won’t remove emotions from investing, and you don’t need to; just aim to reduce how much they drive your decisions.
- Create rules before you need them: For example, review your portfolio on a set date, rebalance if your mix drifts, and only change strategy when your goals change.
- Sense-check big moves: A second pair of eyes can help you separate signal from noise, especially when headlines are loud. The FCA’s findings on digital “nudges” are a useful reminder to slow down and double-check before you act.
Once emotions are in perspective, it helps to be clear on the risks you’re actually managing.
Risk vs volatility: Know what really matters
Volatility is the day-to-day wobble in prices. Risk is the chance you won’t reach your goals or might suffer a permanent loss. If you’re investing for years, short-term swings can be uncomfortable without being harmful. The bigger risk is needing to sell at the wrong time or sitting in cash while markets grow. Expert advice on diversification, sensible risk levels, and regular rebalancing help manage both.
How sound financial advice protects your capital, and your opportunities
Sound advice won’t remove investment risk, and it shouldn’t drown out your judgement. Think of it as a safety net that keeps you on track.
- Objective decisions: A financial adviser helps you avoid heat-of-the-moment choices and stick with a plan that fits your goals.
- Portfolio design that works harder: An appropriate spread of investments across different assets and regions means your plan isn’t dependent on one company, sector, or theme.
- Tax-aware structuring: Making full use of tax wrappers and allowances keeps more of your returns compounding over ti
- Right level of activity: Evidence suggests that trading more isn’t the same as doing better. A calmer, rules-based process usually wins out.
Join us on Thursday 9th October
Ready to turn good intentions into better investing habits? on Thursday 9th of October. We’ll show you how to build diversification that actually diversifies, use the right wrappers to keep more of your returns, and keep emotions from steering big decisions. You’ll leave with clear, practical next steps to apply in the days that follow. Register to save your place.
Time to turn small fixes into long-term progress
If this guide has highlighted a few gaps in your portfolio or approach, let’s close them. Start with a free initial consultation with a Flying Colours Advice financial adviser and we’ll review your situation.
You’ll leave with a clear, practical action list. From there, we work alongside you to put the changes in place, keep an eye on progress, and revisit the plan regularly so it stays aligned with your goals.
Ready to get started? Book a free initial consultation and begin turning small fixes into lasting results and a more secure future.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing.