Are You Committing These Common Investment Mistakes? — Beautiful Times

In my previous articles, I have tried to explain various investment avenues which are available to us and the pros and cons of each investment instruments. I have also explained various thumb rules in investments and how to reach a magic figure of 1 crore with regular and planned investments. Now its time to discuss common investment mistakes.

This article deep dives into the common investment mistakes we all make while planning our investments. Are you making any of these? If yes, then I have listed how to handle them and correct your investment strategy.

Not Planning Properly:

We need to have clearly defined financial goals before planning our investments. Take sufficient time to plan your financial goals and chart your investment strategy. The goals may be divided in to three major segments:

For example, buying a vehicle can be your mid-term goal and planning for your retirement could be your long-term goal. Goals give you the right direction, and investments help to fulfil them.

For each set of goals we need to use different investment strategies. For example, planning for retirement is a long-term goal, for which one can consider investment in equity through SIP of a mutual fund, as equities give great returns over a long term. On the contrary, if you need your money back within a period of 1 year equity may not be the best option as at that point of time it may be doing badly, and your investment must be withdrawn at a loss.

Not Diversifying Enough:

‘ Don’t put all eggs in one basket’ is a popular idiom that we are all aware of, which is applicable to investments also. We need to diversify our investments across various asset classes. Spread your portfolio and invest in various assets like fixed deposits, equities, debts, gold, etc. This will spread your returns, and reduce the risk.

Not Having Patience:

Impatience is a common trait amongst all investors which leads them to loss. One needs to give sufficient time for investments to grow and give desired returns. We all want to see our money give multiple returns within a within a short time, which is not practical. That is the reason we see many gullible investors falling prey to Ponzi schemes and quick return promises. Institutions like Reserve Bank of India, Stock Exchanges keep sharing public notices advising investors not to fall a prey to this, but still, it is very much rampant among the public.

One should have reasonable return expectations from various investment schemes according to risks attached to the investment. Examples, Bank Deposit may be safer than investments in equity markets but may earn less. The reverse is true in case of equity investments. Investment is all about balancing risks and returns.

Not Being Level-headed

Often investors start getting emotional and get too attached to a type of investment. One should not bring emotions in to play in investments, i.e. we should not get emotionally attached to a particular investment instrument or a particular company. In other words, we should be rational and look at it objectively. Investors must weigh the pros and cons of each investment type and map it to their financial goals and see how it fits in before plunging to invest.

Not Staying Updated:

We should be updated with what is happening around us and be aware of the current developments in financial markets. The rate of interest prevailing, inflation rates, which banks/institutions are doing well and where troubles are brewing. Now that markets are globalised, we need to look at trends across the world. Failing to do this ends up in wasted investments that don’t fetch desired returns. So read financial news and global events to know what impact these will have on your country and how it boils down to your investments.

Not Reviewing Regularly:

Your job does not end with investing your money in various instruments according to your goal. One should review periodically as to how their investments are performing vis-à-vis their goals and whether it is moving in the expected direction. We should be able to rejig our portfolios based on the current market dynamics. For eg. If you feel the equity markets are getting over heated we should be planning to shift to debt instruments which are safer

In Conclusion:

To sum up there are myriad of investment options available in the markets with varied risk and returns, which are very dynamic. One may not have sufficient time and knowledge to plan, execute and invest and monitor. A qualified and trusted investment advisor will be of great help in handling your investments.

Some of the articles on money management that will make you smarter with money and earn more.

K.Raja Raman, Chartered Accountant and Financial Advisor

A veteran in the field of finance, banking, micro finance, mortgage finance and equity markets. He has 30 plus years of experience spanning Banks, NBFCs, Micro Finance, and Home Finance institutions and is an advisor for several investors in the equity market.

Emai Id: rrajaram9@gmail.com

Mobile: +91 99400 46513

Photo Courtesy: Image by Darkmoon_Art from Pixabay

Originally published at https://beautifultimes.in on September 13, 2021.