Making mistakes is part of the learning process. However,
it's all too often that plain old common sense separates a successful investor from
a poor one. At the same time, nearly all investors, new or experienced, have
fallen astray from common sense and made a mistake or two. Being perfect may be
impossible, but knowing some of common investing errors can help deter you from
going down the well-traveled, yet rocky, path of losses.
This time of the year, many individuals want to begin with
their financial plans. Sometimes it pays not to make mistakes. While it is not
possible for anyone to predict definite returns when investing, it sure is
possible to avoid some common mistakes which can help you from losing your
money.
Encapsulated below are some mistakes that you sure must
avoid starting in 2016:
1. Over investing in one asset class:
Like Warren Buffett rightly said “Don’t put all your eggs
in one basket”, it is always advisable to manage your financial portfolio by
the way of diversification. Diversification is when one chooses to put his
money in more than one investment platform than just one, for example having
the right balance of equities and debt funds in your portfolio. Most Indians
have a poor exposure in equities which is not advisable; to make profits a
right amount of equity investment is proposed. It should be noted that fixed
deposits, real estate and gold are almost similar in nature, as over a long
period of time all three asset classes perform at par with inflation.
2. Postponing investment decisions:
Most people are too busy to invest; they just wait for the
right time to invest. May be for a next promotion, a better salary or also a
good raise. It should be noted that investment decisions should not be
postponed. You can start as early as 20 years of age; you can save from your
pocket money itself. Imagine your money resting in your savings bank account
where it will earn only an interest of 4%, whereas when invested wisely it can
earn you anything from 14% to 16%.
3. Constantly looking for “What is New” syndrome:
Anyone who makes systematic investment decisions can easily
say that the Indian equity market has performed 14-16% over the period of 10-20
years. An individual can easily keep adding more to it systematically to gain
on their investments. However, people are more bothered about the “What is New”
craze and unknowingly over diversify or what we call it as diworsefy.
4. Periodic review:
Reviewing and analyzing ones wealth pie is very important,
most individuals skip the process, in turn losing money. A holistic view of the
assets one has and taking corrective measures at the right time is what is
required to keep the investments healthy. It is imperative to note that
reviewing your investments once a year is advisable, as this helps you to keep
a check on what asset classes are performing and which are giving a negative
return. If you notice negative returns you may want to switch your investments.
5. Being affected by “Get Rich Quick” syndrome:
In the hurry to get rich most individuals do not want to
give time, often falling prey to fast trading and quick losses. They buy
expensive stocks and the moment the stocks start depreciating they sell them,
as they get scared of losing money. The result is, instead of making money they
end up incurring a loss. The worrying aspect of this syndrome is that both
first time and experienced investors are affected by this. The ideal thing to
do is to buy slow but steady, in this process you should ignore the highs and
the lows. For stable returns one needs to stay invested for a considerable
amount of time. Seek professional help as and when you need.
Summing up, I would like to add that it’s a pleasure to see
your money go up, but it can be devastating to see your money going away. The
idea is to avoid the above mistakes and stay safe. One just needs to stay
focused on your wealth creation.
Source: Moneycontrol.com
