Investors are always looking for ways to improve their investment strategy. As we enter 2021, there’s a lot that people will discuss in terms of how to invest and where to invest.
We’re not financial advisors, that’s why we leave fund and stock-specific recommendations to our advisory partners. We do however have a list of 5 mistakes we know a lot of investors make: mistakes you can easily avoid!
5 Common Investing Mistakes To Avoid
1. Investing Without Knowledge
Far too often, salaried professionals have little to no knowledge about investment options beyond traditional financial instruments. If the only investments you know about are Fixed Deposits, National Savings Certificates, Recurring Deposits and the likes, you need a Wealth Coach.
This is due to a lack of financial education and the prevalence of ill-informed advice that is shared between friends and peers. This is harmful to your financial health simply because investing in better options can help you achieve financial freedom.
2. Poor Choice Of Investments
Similar to mistake #1, using a surface-level understanding to invest in mutual funds, stocks, gold, p2p lending, etc., can lead to losses. Before you choose a stock or mutual fund, find out more about the company, AMC, fund manager, business model, top management, etc.
Inexperienced investors also tend to judge the quality of an investment based solely on star ratings or historical returns. These are not the only parameters to consider. Even current performance is not enough to guarantee the success of an investment in the future. You must consult a wealth coach or a proven financial advisor for this.
3. Investing Based On Emotions
Letting emotions get the better of you while investing may lead to losses. Emotions here could be brand attachment, fear, or greed.
For example, selling stocks in March out of fear of the pandemic may have seemed like a logical option. But stock markets are long term instruments that are known to bounce back over time. Just take a look at the numbers below for example:
4. Not Diversifying
There’s a difference between having a few good investments compared to a few investments. Different asset classes carry different risks and banking on one asset class with all your savings can be bad.
For example, say Mr Mario was chasing profits and decided to invest in a small-cap stock. In 2010, the stock was giving high returns.
The pandemic rolled around and the stock is now giving negative returns. This is bad for Mr Mario.
But Mr Mario could’ve minimized the risk by diversifying his investments into large-cap stocks, mid-cap stocks, debt funds, etc.
The solution is to build a Perfect Portfolio that takes into account all your financial goals and needs.
Unless you win a lottery, you probably won't become a millionaire overnight. Any investor who falls into the trap of chasing quick returns, investing based on trends or banking on the promise of overnight success may face severe losses.
It’s important to keep in mind that market-based instruments and traditional instruments create wealth over the long term.
5 Tips To Help you Avoid These Investing Mistakes
1. Learn More About Investing
There’s a world of investments beyond traditional instruments. Indians can invest in options like:
1. Mutual Funds
2. Indian Stocks
3. P2P Lending
4. Digital Gold
5. US Stocks
6. Exchange Traded Funds
Read more and understand how you can use Systematic Investment Plans to your advantage. SIPs allow you to invest in mutual funds and stocks for as low as ₹1000.
3. Invest Based On Research, Facts, And Fair advice
One way to get the best out of your investments is to seek advice and invest based on research. The market, returns, taxes, all of these aspects are data and knowing what the numbers are whispering can help you understand how to use them to your advantage.
Diversification has benefits. For starters, it can help you minimize your risk by spreading your investment over different asset types. It can even help you generate more returns if you invest based on professional advice.
Here are a few blogs that can help you with diversification:
Bonus Investing Mistake: Not Having A Proven Advisor
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.
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on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!