1) Buying things you don’t understand

Yes, the fund manager seems terribly clever with his currency-hedged futures and options strategy, but if you don’t understand it you really are better off investing in something nice and sensible that you like and understand – companies that make chocolate or beer, for example. Too often investments are sold rather than bought, and you can only make a valid judgement on whether an investment is right for you if you understand what’s going on underneath the bonnet.

2) Not admitting when you’ve made a mistake

No-one likes to admit they’re wrong, but it can be important for investors. When investing, this means you bag the profits from your good ideas as soon as possible, and then hang onto your ‘losing’ investments in the hope that they will eventually turn around. They probably won’t. At the very least, a 10-20% loss should prompt you to re-evaluate why you are holding a particular investment and test whether it should still be in your portfolio.

3) Trusting the wrong people

In general, it is best not to listen to your cabbie or plumber or mates at the golf club, unless they happen to have secretly made millions on the stock market. Fund managers spend every day analysing stocks, often with team of economists and financial analysts on hand to help, and even they get it wrong sometimes. So ask yourself, how would your plumber know any better?

4) Following the herd

Stock markets are created from buyers and sellers. If there are lots of buyers the price goes up, if there are lots of sellers the price goes down. If you follow the herd, the chances are that you are investing just as all the buyers are running out and, after that, all that’s left are the sellers. It is a quick way for novice investors to lose lots of money, as many found to their cost when the technology bubble burst in 2000.

5) Not paying attention to risk

The temptation is often to go for the highest growth investment possible: From technology to commodities to frontier markets, investors often simply ask which is going to make them the greatest pile of cash so they can retire on a yacht next week. The truth is, this doesn’t happen that often and you would be much better off investing according to some realistic long-term financial goals, such as university fees for your children, retiring a few years earlier, or a long holiday. That way, you don’t take more risk than you need and preserve your capital. Ultimately, the effect of compounding returns is likely to be a far more potent contributor to your long-term wealth than picking the in-vogue investment of the day.