4 SIPP mistakes I’m avoiding like the plague!

Christopher Ruane explains four errors he is trying hard to avoid in investing his SIPP, as he tries to maximise its long-term worth.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I think a SIPP can be an excellent way to try and build wealth ahead of retirement, which is why I invest in one.

But while a SIPP can hopefully help me make money, some mistakes along the way could also cost me.

Here are four errors I am hoping to avoid in 2025 (and always!)

Ignoring the ‘small’ costs

Different SIPPS come with their own cost and fee structures.

As the amount in a SIPP grows, such costs may seem like a fairly small proportion of the amount invested. But it is important to remember that a SIPP is a long-term investment vehicle.

While 1% or 2% (or even 0.5%) might not sound much this year or next year, over the course of three or four decades a small annual levy can add up to a huge amount.

So I am paying attention right now to whether my SIPP provider offers me good value for money.

Lacking an investment strategy

Another mistake I am trying to avoid is investing without a strategy.

That does not need to be a formal plan. It need not be complicated. But I reckon it is important to sit down and think about how I hope to grow the value of my SIPP.

For example, what is the right balance of growth and income shares? How much of the SIPP do I want to invest and how much will I keep in cash at any one time (if any)? Are markets beyond the UK potentially more attractive for me?

My point here is not about the specifics of my strategy, but rather than by developing an approach and adapting it as I go I hope to try and miss out on some avoidable errors.

For example, I would not want to miss out on a huge surge in growth shares because I was 100% focused on dividend shares.

Not diversifying enough

That brings me to another error: not spreading a SIPP across enough shares.

As most seasoned investors know, even the most brilliant share can suddenly tank unexpectedly.

That hurts financially – but even more so if its role in a SIPP is too large relative to other holdings.

Not learning from mistakes

It is easy to revel in great investments. But what about lousy ones?

A lot of us like to forget about them. But I think that can be costly, as it means we may just make similar errors in future.

For example, one of the worst performers in my SIPP is boohoo (LSE: BOO). From MFI to Superdry, I have owned quite a few awful retail shares. So although I still invest in the sector, I am wary.

What was my key mistake with boohoo?

I think one was ignoring the market signal: a massive price decrease before I bought was not the bargain I hoped. Rather, it was other investors signalling their declining confidence in the retailer’s prospects.

I thought past profitability equated to a proven business model. But – and I know this – past performance is not necessarily a guide to what will happen in future. Competition from the likes of Shein changed boohoo’s marketplace dramatically.

I still own the shares and hope boohoo’s large customer base and strong brands can help it recover. But I have learnt a hard lesson!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in Boohoo Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Would Warren Buffett buy BP shares, as oil excitement grows?

Warren Buffett is a big investor in the oil business, and BP's performance has been attracting investor attention in results…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

Here’s how long-term loyalty to UK shares can lead to dazzling returns!

The most successful UK and US share investors buy shares to hold for the long term, as this report shows.

Read more »

Investing Articles

NatWest has just smashed brokers’ dividend forecasts!

After NatWest delivered a Valentine’s Day surprise to investors, our writer thinks the experts may have to raise their dividend…

Read more »

Investing Articles

The NatWest share price slips in early trading despite positive FY 2024 results. What’s the deal?

The NatWest share price is down slightly this morning after the bank released its final results for 2024. Our writer…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

My Legal & General shares have climbed just 7% — so how come I’m sitting on a 20% gain?

Harvey Jones' trading account is showing only a modest return on his Legal & General Shares, but on drilling down…

Read more »

Investing Articles

Prediction: the BP share price could rise in 2025 (or it might fall!)

Following this week’s release of the energy giant’s 2024 results, our writer reviews the prospects for the BP (LSE:BP.) share…

Read more »

many happy international football fans watching tv
Investing Articles

What’s gone wrong with the FTSE 100’s ‘King of Trainers’?

Feeling the pain of a 28% drop in the JD Sports share price over the past three months, our writer…

Read more »

Investing Articles

Is it too late for investors to consider buying these outstanding FTSE 100 shares?

Stephen Wright wonders whether now's the time to consider buying shares in the FTSE 100’s outstanding companies, despite some high…

Read more »