As we enter the 4th Quarter of the year, I am regularly being asked whether now is a good time to invest or has the market moved too high since early Summer? A reminder of the seven most common mistakes that investors make may help to answer this question.

We all need reminders from time to time. You know, those reality checks for when we’ve become complacent, such as the phone call from the school asking us when we plan to pick up little Waynetta as she’s the last one left in the playground [I was forgotten by my mother outside Sainsburys as a baby and as you can see it scarred me for life!]. I recently read an article entitled “The Seven Deadly Sins Of Investing” and it was extremely useful in providing a framework around which to consider the basics of investment once again.

One of the first mistakes is to ask the question - whether now is a good time to invest - in the first place. That is not to say that it is not a perfectly valid question to ask, and is one that I invariably ask fund managers themselves when I meet with them, but only the extraordinarily lucky or untruthful are consistently good at timing the market. Sure, there are times when it makes sense to keep your powder dry for a couple of months or so, but, in my experience, as many investors lose out by not investing as by taking the plunge. If you are investing for the longer term, timing really shouldn’t matter that much.

Recent performance is another trap into which too many of us fall. It is psychologically difficult to refrain from jumping on an apparent bandwagon once it has been rolling for a while, but invariably momentum runs out at the point that the most people are joining it. Technology is an obvious example, but resources funds are a lesser, but more recent, phenomenon, whereby they became the “must have” fund having been friendless for many years. They may well have only paused for breath, but it is important to keep a portfolio balanced and it is so easy to invest in the latest fad and lose sight of this.

Which leads to the third most common mistake – that of investing randomly. When I see a new client’s PEP and ISA portfolio for the first time, I can very often tell what year it was that they bought a fund simply from the fund itself. Invesco European Growth? 1996. Aberdeen Technology? 1999. JPM Natural Resources? 2006. Each of these are examples of sector funds being bought which are usually out of all proportion to the overall risk/reward boundaries of the individual concerned but which reflect the sentiment at the time linked to recent performance. It is vital to have some kind of plan and structure to your portfolio. Simply accumulating funds on an ad hoc basis is highly unlikely to lead to a satisfactory conclusion.

Having a plan ensures that you do not duplicate your investments. I remember once meeting someone who, when asked about diversification, assured me that they spread their investments around and never had all their eggs in one basket. Upon closer inspection, what this chap had actually done was to buy a Virgin Tracker fund in year 1, a Legal & General Tracker fund in year 2 and a Gartmore Index fund in year 3. Despite apparently diversifying by buying funds from 3 different providers, he had simply doubled up on his investment in almost precisely the same stocks in each fund, thus increasing his risk rather than reducing it. It is very important to know what is actually in the fund that you buy.

Perhaps the biggest mistake we make is to grow too attached to our funds and fail to review them sufficiently. You should be prepared to be flexible and willing to alter your portfolio to fit your circumstances as they change. Fund supermarkets are making this much easier to do and I would urge you to re-register your funds onto one if you have not done so already. If you make a good profit over time from a fund, for goodness sake keep some of it to yourself by switching at least partially into an alternative, non-correlated fund, or cash. There is nothing worse than making a profit, then giving it all back again. Too many people are exposed to too high a level of risk as they approach retirement by failing to adjust the funds that they hold.

Lastly, two other common errors that investors make are to become too hung up on charges and keeping too much long term capital in cash. Of course, the worst possible combination is a poorly performing fund which charges too much, and there are plenty of these. But I see too many people who concentrate solely on low charges, consequently missing out on some slightly more expensive, yet consistently good performing managers. As for cash, we all need it and at times it is our best friend. However, numerous studies have shown it to be risky in its own right as a long term investment vehicle, as our old enemy inflation will eat into it steadily over the years.

We all make these mistakes from time to time. If you recognise any and want some help in dealing with them, feel free to get in touch with me.

Andrew Merricks is head of investments at Skerritts Consultants Ltd. You can contact him on 01273 204999 or via e-mail at Andrew@skerritts.co.uk or visit his website www.skerritts.co.uk