1. Having all your eggs in one asset class basket. Asset allocation is a major determinant of your future returns (and the volatility you’re likely to experience along the way). Getting the basic building blocks right upfront is pivotal. While tactical changes along the way may occasionally be useful, a strategic long-term allocation - accompanied by the required patience and discipline - goes a long way when simply left to do its work.
Fundamental asset classes to consider include equities, fixed income and cash. You should aim for an optimum mix that will give enough growth (equities in the long run) and enough stability and yield (cash and fixed income) to match your time horizon and needs.
2. Not enough sectors. If you only invest in a single asset class - only in gold or only in property, for example - this can cause your concentration risk to increase significantly. Rather, aim for a spread of industries. This is where global investing really comes into its own, as there are several growth industries that are beyond your reach if you only invest locally.
3. Ineffective exposure. If you only own a handful of stocks or are exposed to very few counter-parties, this will increase your risk. When it comes to equities, a minimum number of instruments and a maximum percentage per instrument will help to diversify away from share-specific risk. In the same vein, there should be a spread of banks and instruments within your fixed income and cash portfolio.