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Pensions are extremely important, but for many of our working lives (not to mention before), we may not think enough to deserve it. For example, take a personal pension (SIPP) for self-investment. Given its long-term nature, it is appealing when the times are busy thinking about it or investing in money. But that can be a costly mistake if your retirement rolls.
There are three mistakes that you aim to avoid when investing in your own SIPP.
Surprised by the unknown
From past experiences, we know that the economy continues to evolve. Some of the stocks that are barely known and likely traded with Penny today could turn out to be worth a big buck in ten or two years from now.
Sometimes, missing that fear leads people to plunge into stocks they don’t understand, just in case they shoot value before seizing the opportunity.
It is considered a kind of wise and necessary investment in SIPP. That’s a speculation. I’m trying to avoid making mistakes in investing in “”.The next big thing“Unless I understand that.
Of course, your circle of abilities is not static. Learn about up-and-coming industries that sound promising, such as renewable energy and biotechnology.
Diversification failed
Does this sound like a problem to you? Warren Buffett invested hundreds of billions of dollars apple stock. It worked so well that the stock price not only increased its value by hundreds of billions of dollars, but also became representative of a much larger portion of Buffett’s company. Berkshire HathawayA portfolio of listed stocks.
It may not sound like a problem. billionaire Buffett still works for 94, so his pension may not be a major concern for him.
But Buffett knows what every SIPP investor should remember. You can do too many good things.
The tech giant is Berkshire’s biggest stockholder, but stock sales mean that they no longer control their portfolio to the same extent.
Not taking into account future cash flows
Many investors like to prefer the idea of ​​buying dividend stocks that can be quietly checked in SIPP. I’m one of them.
But it’s always important, not only is it looking at the current dividend yield of shares. Future future yields should be considered based on potential future free cash flows.
take Imperial Brand (LSE: IMB) As an example. Like many tobacco companies, it is a free cash flow machine. In the first half of this year alone, we generated £1.5 billion in operating cash flow.
Currently, investment-related cash outflows are £2 billion. Additionally, financial-related cash outflows were £3 billion. However, it paid more than £1 billion in dividends, most of which paid to shareholders.
If it hadn’t chosen to spend £060 million on buying back its own shares, Imperial’s cash flow would have comfortably covered dividends and made the money affordable. So far, so good.
However, in the long term, tobacco use has decreased. Tobacco volume fell 3% year-on-year. The company has pricing capabilities, but in the long run, it is worried that it will lower free cash flow and reduce dividends.
I used to own shares in Imperial Brands at SIPP, but no more.