A Shares and Shares ISA could be a highly effective platform for constructing wealth over the long run, even from a modest base.

However whereas rising share costs and dividends may assist to create wealth in an ISA, there are additionally elements that may destroy it.

That’s the reason I attempt to keep away from this trio of widespread traps when investing.

Getting too enthusiastic about one share

Think about this state of affairs.

You purchase a share you assume is good and it goes up loads. So you purchase extra – and it goes up additional. Excited, you purchase much more – and it goes up once more.

That is each unhealthy and good, for my part. Clearly the rise in worth is nice – so what’s unhealthy? The shortage of diversification within the ISA.

An increasing number of cash being put into one share makes the ISA much less diversified. In the meantime, that share’s rising worth means it involves characterize a bigger and bigger share of the general portfolio.

That may occur to anybody – Warren Buffett’s Apple stake got here to dominate his portfolio at one level exactly as a result of the price had risen up to now.

Buffett then offered numerous Apple shares, though by hanging on to many he instructed that this was not as a result of he had misplaced religion within the funding case.

Regardless of how compelling one share could appear, any good investor all the time stays diversified. Even the most effective firms can run into sudden enterprise challenges.

Chasing yield no matter its supply

Lots of ISA buyers (and I embody myself on this) just like the passive earnings potential of a portfolio filled with dividend shares.

With a £20k portfolio, the present common FTSE 100 yield of three.4% would imply annual passive earnings streams of £680. However a 5% yield would imply £1,000, whereas a ten% yield would imply £2,000.

The attraction of excessive yields is straightforward to grasp. It may be addictive.

However as an investor, it will be important all the time to do not forget that dividends are by no means assured.

So as an alternative of fixating on a share’s present yield, I attempt to have a look at its enterprise prospects and assess what kind of yield I believe it could possibly assist in future.

Throwing good cash after unhealthy

I just lately offered all my shares in Boohoo Group (LSE: DEBS). That was a painful choice to make, as not solely did I promote for a lot lower than I initially paid, however I additionally needed to take into account why I had squandered a few of the cash in my ISA to purchase such a canine.

The explanation was that, once I purchased, Boohoo had confirmed its enterprise mannequin, had beforehand been worthwhile, was sitting on spare money and had a powerful model and enormous person base.

A few of these potential strengths are nonetheless true and will assist gas a turnaround. However Boohoo has had an terrible few years, dropping cash hand over fist whereas battling a downwards gross sales development.

Lastly I made a decision to chop my losses. However possibly I ought to have completed that after my first buy, moderately than shopping for extra shares when the price fell.

Badly chosen shares are usually not the one method one can waste cash in an ISA: paying pointless charges and fees is one other.

So, it pays to choose neatly when utilizing a Shares and Shares ISA to attempt to construct wealth.