Investing - what not to do

IT'S still January – just about – and a good time to check your investments are track to produce sterling returns this year. Investment experts invariably give advice on what we should be doing – but what shouldn't you do? David Gow, a financial planner at Acumen Financial Planning in Edinburgh, gives his top ten investment "don'ts".

1 DON'T RELY ON SAVINGS

Want to quit work at age 65 with 20,000 a year to live on in retirement? Then don't shy away from taking a bit of risk. Stock markets might have had a rollercoaster ride in recent years, but they're still the best bet for boosting your savings pot over the long term.

With interest rates at just 0.5 per cent and inflation running at 4.5 per cent (as measured by the retail prices index) your cash savings are likely to be losing value in real terms. Make your money work for you – and start straight away.

2 DON'T UNDERSTAND? DON'T INVEST

Two years ago, Bernard Madoff – previously a renowned "hedge fund" chairman – was arrested for running what turned out to be a giant Ponzi scheme and the world's largest investor fraud committed by an individual. Millions of people were caught up in the scandal, another reminder of a very important lesson: if you don't understand it, don't invest. Ask enough questions to know what you're getting into and protect your hard-earned cash by reading disclosures and statements.

3 Don't complicate it

Want to be sheltered from volatile markets? Financial services providers often tout "structured products" as the answer. These claim to give people the opportunity to benefit from stock market-related growth while offering a degree of downside protection. However, these products lack transparency, often have hefty charges and can be riskier than portrayed. A well-diversified, low-cost portfolio may serve you far better.

4 DON'T FORGET WHERE YOU ARE

How much of your salary you should stash away for your retirement or other life goals very much depends on what you aim to achieve. Someone aged 25 should think about tucking away around 15 per cent of their annual salary every year to guarantee a comfortable retirement.

If you're 40, you'll have to save more – at 17 to 24 per cent of your income – if you haven't yet saved anything.

5 DON'T LEAVE IT TOO LATE

Research shows that putting aside even a little bit of money as soon as possible and steadily adding to it can significantly boost your financial prospects. This is down to what is known as "pound cost averaging". By drip-feeding money into markets – even 50 a month – means you buy in when markets are both low and high, and reduce your risk.

6 DON'T RETIRE TOO EARLY

One-sixth of the current British population will live to be 100 – so if you retire at 60 you could spend 40 per cent of your life in retirement. One of the most effective ways to increase your retirement savings is to work – and continue investing – for a few more years.

7 DON'T STAND STILL

The key to reaching your investment goals is to steadily increase the capital invested. Increasing that amount – even by a few per cent above inflation every year – will significantly improve your portfolio. Moneymadeclear.org.uk, an information service provided by the Financial Services Authority (FSA), has a handy pensions calculator that shows the potential benefits of saving more or working for longer – www.moneymadeclear.org.uk/tools/pension_calculator.html.

8 DON'T LEAVE MONEY ON THE TABLE

If your employer offers to pay money into your pension fund on your behalf, take it. Many employers offer retirement saving matching through a group pension scheme. If you don't sign up, you're leaving free money on the table that could greatly increase your income in retirement.

9 DON'T IGNORE ADVICE

In this age of the internet, there's an abundance of free information about saving, investing, and money management at your fingertips. You could also go to the library, take a class, or sit down with a financial planner. Becoming knowledgeable about your options and developing a clear strategy are the cornerstones of smart investing.

10 DON'T SIT BACK

It's not a case of starting an investment plan and forgetting about it. Think about why you are investing – to buy a house, send the kids to college or for your own retirement – and regularly review your situation to make sure you're on track.

Your investment portfolio shouldn't be left to gather dust. A balanced portfolio of funds chosen ten years ago would have generated 15 per cent more profit if it was rebalanced to the original proportions each year when compared to a portfolio which was left untouched, according to Skandia. Don't take your eye off the ball.