Many treat investing as side hustle these days and make costly mistakes in their eagerness to invest. Technology also has made investing easier but it can’t help you with the skills required to be a good investor. Very often ease of transaction is confused with expertise to invest by first time investors. Investing mistakes can be very costly as they can ruin your financially. Here are a few mistakes that you can easily avoid
1. Investing in an ad hoc manner
Ad hoc investing is when the money is invested without any goals or appropriate financial plan in place. It is like investing without knowing how much you will need for a particular goal. Also, with no goal attached to investments, there is higher probability of stopping or withdrawing those investments as and when there is need for funds or in times of market volatility. In effect, investing in such a directionless manner will lead to an eventuality of falling short in terms of financial goals. The right way to invest is by creating a proper financial plan based on an individual goal, investing as per that plan and reviewing progress periodically.
2. Not following asset allocation and chasing recent performers
Most often investors tend to prefer investing in those asset classes or funds which have been performing very well off late. As a result of this approach, investors end up with concentrated portfolios thereby experiencing higher volatility and losing money. This is an erroneous approach as there will be certain reasons behind the outperformance. Also, one will have to gauge the risks involved and decide whether the outperformance will be sustainable or not. An easy way to circumvent this pain is by adhering to asset allocation by diversifying investments across equity, debt, gold, real estate etc. to give optimal risk adjusted returns.
3. Trying to get rich quick
We need to understand that investment is not akin to lottery. Trying to make instant gains, could lead to wrong investment decisions causing severe losses. There are mutual funds in India that have generated 100 times returns in last 30 years but not even 1% investors stayed invested for that long. So making changes to the portfolio every year may not help. Instead make goals for decades, have realistic return expectations, be patient and give your investments time to grow.
4. Stopping investment during market downturns
During times of a market correction, it is often seen that investors tend to withdraw or halt their SIPs in a bid to save their investments. What investors fail to understand is that SIP as a concept is designed to take advantage of market downturns by buying more units at a low cost and when the market rallies such buys will make way for substantial gains. All of this will be lost if one stops SIP during market downturns. So, downturns are a good time to invest more if possible. There will be times which are not favourable, it is important to ignore the noise around, keep an eye on your long term goal and stay invested.
5. Comparing investments with friends
Comparing investments and bragging about them is the latest pastime for many. Many even invest based on friend’s advice without realising what may be good for your friend’s goals and risk appetite may just not be suitable for you.
6. Not taking help of Financial experts
Trying to save cost and not taking help of financial experts’ help may lead to the mistakes mentioned above and many more which can be avoided. Even the best athletes in the world have coaches. The presence of a financial expert will help you plan your individual goals, risk appetite, cash flows and invest accordingly. He also ensures that during tough times, you stay focused on your goals and don’t deviate by making these mistakes. He also ensures your family gets all the investments in case something happens to you.
There is one more grave error which many commit and that is not investing at all and sitting on sidelines with money lying in savings account due to fear of making mistakes or lethargy. It is upto us to either learn from others’ mistakes or make your mistakes early in life. A better course of action will be to choose a financial expert who will help you have a stress free investment journey.
Author: Sourabh Mahajan, Founder, True Wealth