Investing in a stocks and shares ISA can be very rewarding.

But things don’t always work out this way. Indeed, sometimes the value of an ISA can fall rather than rise.

Here are three mistakes I want to avoid in my ISA.

1. Too much of a good thing

In the last five years Nvidia stocks soared 2769%.

This means that if I had invested my entire £20,000 ISA in the chipmaker in November 2019, I would now have an ISA worth over £570,000.

Wow!

While it’s uncomplicated to look at stocks with the benefit of hindsight, it’s not a luxury available to every investor when making choices. Five years ago, it wasn’t inevitable that Nvidia would perform as well as it has.

If I had invested the entire 20,000 five years ago. pounds ISA into Nvidia shares and things weren’t going so well, I would be taking unnecessary risks by not diversifying properly. Nvidia has soared, but many other companies that looked promising five years ago have lost value.

2. Focusing too much on past performance

When deciding how to invest an ISA, the past performance of shares is often taken into account. This may be the case when earnings are included as part of the price-to-earnings ratio for valuation purposes, or it may be the case with a dividend.

I think this makes sense because past performance can be an indication of how the company has performed. I prefer to invest in companies with proven business models.

However, past performance, while instructive, is not a guide to what may happen in the future. Forgetting this key point can be a costly mistake, for example when it leads to investing in high-yielding stocks only to have the dividend cut or canceled altogether.

To put this into context, consider Vodafon (LSE: VOD). In the 2019-2020 financial year, the company had a turnover of nearly EUR 45 billion per year and paid a dividend of 9 cents per share. As now, it benefited from a forceful brand, a huge customer base and a competitive position in a market that is likely to remain huge.

Fast forward to today. Revenues fell by approximately 18% and the dividend was cut in half. The company is selling off assets, which means revenue will likely remain lower than before.

Over the last five years, Vodafone’s share price has fallen by 56% and its dividend per share has fallen by almost the same amount. In my opinion, five years ago, the previous dividend cut, inconsistent business results, and huge debt pile could have alerted a forward-looking investor to some of the risks.

3. Ignoring dividend coverage

A related mistake is to look at dividends without considering the source of the dividends.

When choosing income stocks for my ISA, I look at what I expect will happen to free cash flow in the coming years and what that means for dividend coverage.

Just because a company is going through a period of weakness doesn’t necessarily mean the dividend is at risk. Whether or not it does depends on how well it is covered. If existing free cash flow barely covers (or doesn’t cover) the cost of the dividend as it stands, that’s a red flag for me as an investor.