Common Patterns of Failure in Investment Trust Management

 [Common Patterns of Failure in Investment Trust Management]

The patterns of failure in managing investment trusts (funds) are actually common pitfalls that many people easily fall into. Below, we'll clearly organize typical failure patterns, their background, and countermeasures. 👇

🧩 Patterns of Failure in Investment Trust Management

① Repeated buying and selling based on short-term price fluctuations

Typical example: "I got scared and sold because it dropped a little," "I bought it because it's been going up recently, so I didn't want to miss out."

Problem: Timing the market is difficult even for professionals, and often results in "buying high and selling low."

Countermeasure: Focus on long-term, regular contributions, and diversification, and limit adjustments to periodic rebalancing.

② Purchasing without clearly defined objectives or risk tolerance

Typical example: "Just because it's popular," "Because the bank or securities company recommended it."

Problem: If your investment objectives (retirement funds, education funds, short-term investment, etc.) are unclear, you cannot choose the appropriate product.

Countermeasure:

Clearly define "by when," "for what purpose," and "how much you want to increase your investment."

Choose an investment trust with a risk level that matches your goals and time horizon.

③ Disregarding fees (costs)

Typical example: Purchasing an active fund with a management fee exceeding 1.5% without thinking.

Problem: Even a difference of a few percent annually can result in a significant difference in returns over the long term.

Countermeasure:

Check management fees, sales commissions, and trust asset retention fees.

Consider index funds (low cost) as a primary option.

④ Lack of diversification

Typical example: "Only Japanese stock funds," "Concentrating on theme-based funds."

Problem: Concentrating on a specific market or industry leads to significant damage during downturns.

Countermeasure:

Be mindful of diversification across "regions," "asset classes (stocks, bonds, etc.)," ​​and "currencies."

Utilize global stock funds or balanced funds.

⑤ Choosing based solely on high dividends, themes, or popularity

Typical example: Attracted to themes such as "AI-related," "decarbonization," and "generative AI."

Problem: Often results in buying at the peak of popularity and getting stuck with high-priced assets. Solutions:

Thematic investments should only be used as a "spice" in small amounts.

The basic principle is to focus on long-term diversified investment.

⑥ Stopping contributions midway

Typical example: "I stopped contributing because I got scared when the price dropped."

Problem: When prices are falling, it's a chance to buy cheaply, but stopping contributions weakens the effect of dollar-cost averaging.

Solution:

Continue automatic contributions regardless of market fluctuations.

Simply review your investment strategy periodically.

⑦ Losing money by not understanding taxes, NISA, and iDeCo

Typical example: Investing in a taxable account and having 20% ​​of profits taxed.

Problem: Not using these systems reduces efficiency due to taxes.

Solution:

First, utilize Tsumitate NISA or the new NISA.

Maximize the benefits of long-term, tax-free investing.

⑧ Not rebalancing

Typical example: Stocks rise in value, and the initial balance is left unchanged.

Problem: Risk unintentionally increases.

Solution:

Rebalance to the target allocation about once a year (adjust by selling or making additional investments).

📊 Summary: Common characteristics of successful investors

Success Pattern Content

Long-term perspective Thinking in terms of 10 years or more

Diversified investment Broad diversification across global stocks and bonds

Emphasis on low costs Utilizing index funds and ETFs

Not swayed by emotions Continuing contributions regardless of market fluctuations

Utilizing systems Utilizing the new NISA, iDeCo, etc.