As we grow up, we become more and more aware of our financial responsibilities. From saving for ourselves and taking care of our aging parents to securing our partner’s and child’s financial future, all these duties require careful financial planning. But that is where most of us end up making some common investment mistakes. Financial planning is not something we are all good at. But if you think about it, financial planning is fairly simple. To secure our future one needs to start investing now. And our investments will bear fruit only if we avoid these common investment mistakes:
Unrealistic Expectations
For a long-term investment, one needs to create a portfolio considering all the risks and level of returns the portfolio is churning out for the investor. But no matter how judiciously one picks the correct stocks or funds, no one can actually predict what the ongoing market will finally result you with owing to various other peripheral reasons. So ideally, it is reasonable for one to not expect a lot from the investment and stay grounded by looking at the realistic picture of the market.
Unclear Investment Goals
One really needs to understand his financial status and based on that should set investment objective in order to meet his desired goals. While keeping life objectives in mind one needs to thoroughly plan the investment using right strategies, pick and configure the correct stocks/funds and design the portfolio well. Unclear life goals can trap you in vicious cycle where one cannot escape out, thereby resulting in living a life of bearing a burden unforeseen debt which ultimately spoils quality of life. If you have difficulty defining your goals, we at Paisabazaar.com can help you. Log on to our Investment Planner to know how to define goals and what investments to make to achieve them.
Lack of Portfolio Diversification
The optimum way to get best results from market is via a diverse portfolio. Often investors tend to invest in only one kind of securities and when the market falls hitting that particular sector of investment, that results in disaster for the investor. Performance of the portfolio can be also affected by too much diversification and too much exposure. Therefore, one needs to have a balance while designing portfolio to bear the market risk. It is always best to seek a financial advisor while portfolio designing. Better still, do it yourself by taking help of our investment platform.
Focusing on Short Term Performance
If a person is a long term investor, then he should not be baffled by the benefits which are being earned using short term investment. Such speculations can land one in disaster because it motivates to reconsider the investment strategy again and can drive one’s focus on short term investment by not analyzing the implication of this modification.
Excessive Focus on Trading
Investment requires lot of patience from the investor. One has to keep calm with respect to the factors concerning the returns from investment made. One needs to watch the market closely and should just not be in hurry to buy, sell or modify the portfolio based on his instincts. Such things not only result in high transaction fees but also one gets trapped in unforeseen risks involving frequent portfolio churning. One needs to make sure that he is on track and that he should use the market impulse to reconfigure the portfolio based on a calm and composed mindset rather than abruptly.
Excessive Tax Savings Focus
It is quite obvious that taxation is also one of the key drivers towards choosing correct investment instrument. However, one should see investment as a means to increase corpus and get good returns rather than focusing too much on how one can save tax. Such vision helps investor chose the right kind of investment instrument and hence could objectify the designed portfolio.
Not Reviewing Investments Periodically
It is always a good practice to review the investments done in portfolio as it helps to understand how the returns are going to be. Not doing so is a common investment mistake that is easily avoided. Regularly reviewing the portfolio helps us know the ups and downs of the market and an early catch can help ensure swift implementation of correct the investment strategy. Investors mostly forget or become lazy in doing such reviews and when the market crashes, because of lack of early correction in portfolio suffer from heavy losses.
Trusting the Wrong Advisor
One should always take out extra time to find the right financial advisor for oneself. A financial advisor should act share the same philosophy of life goals as the investor is having so that both can work towards a common goal. Therefore, it’s always best to pick the right advisor rather than landing up in situation where the goals set by you and the ones understood by your advisor are poles apart.
Also, even though your financial advisor is good, you must do your own research and then invest. It’s better to be safe than sorry.
Not Factoring in Inflation
Another common investment mistake of investors is to just focus on nominal returns instead of real returns. The real returns comprise looking at the performance after considering fees and the inflation in the economy. One should always keep a check on how the rising costs would impact their standard of living and what it would take to save in order to meet the rising demands coming out of rising costs. The returns of the investments done by the investor should be effective enough to meet the inflation factors.
Emotion Driven Decision-Making
It is always advisable to construct a good portfolio with the help of a advisor. Don’t be carried with what and how your partner will feel if he/she is not involved in financial planning or investment decisions. The financial goals should be collective pertaining goals of both investor and the family which he is supporting. But in order to achieve such objectives it’s always good to trust the ones who are actually experienced in such activities. Any wrong decision made or driven by your partner can significantly affect your goals being achieved in a timely manner.