Monday, 23 Oct 2017

10 Investment mistakes to Avoid


There are ten common mistakes made repeatedly by investors. You can significantly boost your chances of investment success by becoming aware of these typical errors and take steps to avoid them.

1.    No Plan for Investment:

People do invest in products but there is no plan. Mostly the investments are made in the name of Insurance!! Even in case of mutual funds, there is no strategy; it is just a clutter of products which does not carry any meaning when seen together. No wind is right unless you know which harbor you have to reach.

2.    Too Short of a Time Horizon:

People forget that the most important tool of wealth creation is time in hand. People want quick money and even though their financial goals like retirement, kid’s higher education etc. are far off, they still want quick return. At times to make quick money, they take undue risk like Futures and Options, trading etc.

3.  Chasing Performance:

Investments are made in funds which has given the highest performance is last year. Now a days, gold is preferred as it is rising. Recent past performance is not the measure to judge future performance. Investor should look at past track record like 5 year, 10 year return and that too just as one of the tool to select the fund, not entirely depending on that only.

4.    Watching the Markets and Predicting Them Is the Key to High Returns:

One of the most common mistake investor makes. Market is complex animal and cannot be predicted by anyone. Even the professional managers can’t predict it. The more it tried to do, the lesser are the chances of good return. In stock market, “inactivity” plays more role than “activity”.

5.    Mixing Financial Vehicles: Insurance with Investment:

The objective of Insurance and Investments are different and both have their own weightage in Financial Planning. Insurance is for present planning– “what if the bread earner is no more today” and investment is for future planning – “after 10 years, I need to marry my daughter”.  Mixing these two by purchasing ULIP makes no sense and investor should keep it separate. Buying Term Plan for insurance need is the best policy.

6.    Following the Crowd:

Investment is not a game of football where the team has common goal. It is a game of chess where each individual has to plan for his unique need and situation.

7.    Churning Your Investments:

A frequent change in portfolio without any plan or just to increase the return is not a right strategy. It only costs taxation and other charges. Also, many distributors and banker advise you to churn very often as they want to meet their sales target and you are no more than just a TARGET!!

8.    Unrealistic Expectations:

Return out of any asset class depends on economic condition. If inflation is high, FDs give more return and if inflation is low, they give less. Equity funds will give returns which are more or less in line with the growth of the economy. Investments made just to make high returns are usually unsuccessful.

9.    Refusing to Accept a Loss/Mistake:

What would you do if you have taken a wrong route? Obviously you will return back, though it may cost you time and money. But the same thing does not apply with most of the investors when they have chosen a wrong investment. Correct yourself, if you find that there is a mistake, don’t hand up with that investment.

10.   Over Monitoring Your Investments:

Many people look at their portfolio so frequently that they in a way become addicted to it. One should always give time to investment to grow and then reap the benefits. Over monitoring would mean that investors are emotionally attached to market movements and this is one of the biggest reasons of people not making good returns.

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