Skip to main content

3 investment mistakes to avoid

There are several approaches to investing one can take. And there can be many of these approaches that can be right. Not necessarily the ones with maximum returns, but the ones which fit your objectives. It can be maximization of returns (but with capacity to take risk), capital protection, diversify and so on.

Yet we make mistakes. Almost everyone does at some point of time or other. And many times. However, some mistakes are more common than others. 

Based upon my observations, here are the most common mistakes that investors make:


1. Too much debt in life - These people typically correlate affordability of things to access to loans & availability of EMIs. EMIs can come in different shapes and sizes. It can be 10% car loan, 12% personal loan, 14% consumer loan or 36% credit card debt! And before you realize. you are in a debt trap. Many of these people may though, not stop SIPs in stock market, because "stock markets give 15% assured returns in long run", they have been told.

2. Lack of risk management - There can be 2 broad parts to risk management - being sufficiently insured and having a handy contingency fund which can be used whenever the need be. A life insurance (ideally a basic term plan) and a health insurance are bare minimum you need to start with. A contingency fund worth few months of your expenses is also something you shouldn't be ignoring. 

3. Lack of diversification - If you are looking at investments and have all your investment parked in a single asset - say real estate(Which you probably bought on EMI) or equities or bank FDs, you may need to rethink the allocations. You may end up getting windfall returns (and if you do this consistently, you are a genius and are not eligible for having this as "investment mistake". You may also end up underperforming severely. While different people can come up with different rules for allocation, you need to consider them as mere guidelines and not any golden rule. You need go with what are your objectives and what is your risk profile. 
Bonus - Lack of any planning related to investing! Depending upon your perspective you may consider investment planning as a prerequisite or lack of it as a mistake. But yes, you need to have a plan. At least a semblance of it. And it is important to have that to get started!

What do you think are the most common investment mistakes and how can you avoid them? 

__

You can also view this on BeingFinWise

Comments

Shop @ Amazon

Popular posts from this blog

Assured returns from stock markets?

Stocks (and hence mutual funds) are often sold as something that give "assured" long term returns over a period of time. While this has been true for most of the times, and all time if we consider a long enough time horizon in India's recent history but is this always true? Can it be possible that stock markets can give lesser, say 10% returns over next 10 years? Or 5 percent annual returns? Or, taking inspiration from Nicholas Taleb, a black swan event happens and your end up barely recovering 80 percent of your principal amount (i.e. 20 percent loss) -   Theoretically yes.  Hopefully no.  I am not a predictor of future, nor are thousands others who claim to have more than 1000% percent surety of future events. So, if you are contemplating taking a personal loan @ 12% for some financial need and want to be invested in a mutual fund for "assured" 12 / 15/ 18/ 25 percent returns, maybe you need to rethink. If you want to borrow money @ 12% just to inv...

Saving & investing money versus living life king size

Should you save money or should you live life king size and enjoy your life - is one of the perennial question about people who are interested in doing a bit of financial planning. (Of course, the question doesn't arise if you don't do financial planning at all - you'll, in all probability chose the latter). Taking a step back, one needs to understand what is meant by "living life king size" in the above? Rather than going into an attempt to give a standard definition, I'll try to pose scenarios - Do you always want the latest model of iPhone? And the iPad? And you are willing to consider buying an Apple Watch also? Your car needs an upgrade every few years? From an Alto to i10 to Honda City to (hopefully!) CRV in few years. For you affordability of things means easy access to EMIs? You want to keep upgrading something or the other in your house every few months - One year it may be the cupboards, the other year it may be the sofas, and the next year...

What's the purpose of investing?

"Investment" - This word is much used and often much abused one. One keeps on hearing this almost all the time be it in office or catching up with friends or attending a family functions - almost everywhere. More so when we are fed with lot of information about how one needs to make money work to get more money. However, for a lot of people, the clarity on one question is often lacking - What is the purpose of investing? And even if one knows his/ her purpose of investing, it is often not implemented in real life. For instance, purpose of one's investments may be having sufficient funds in times of need. Yet they may opt for a personal loan when faced with pressing need for money. Based upon my observations, below are some of the most common purpose of investments (in no particular order) I invest because there is some sufficient funds lying with me and I can get great returns. I am investing for some specific goal - buying a house, education of kids, m...

The story behind credit card debts & personal loans

Any one with even an iota of interest in personal finance & its workings would probably know that credit card debts and personal loans are usually the worst kinds of debt traps that you can fall into. Yet many people fall into that trap again and again. Many people do come out of it eventually but some don't & this becomes a part of their "lifestyle". That you are eventually paying much more than you need to, if you default on credit card payments intentionally or unintentionally (probably @ 36 % per annum or something similar) or take a personal loan (say, @ 12% per annum or so) is not hard to fathom. However behind these numbers, there may be even a deeper story - that usually that of not having control over expenses or not having created a buffer amount. While there may be some pressing need like unplanned or recurring medical expenses which fuels sudden demand of money or an unexpected job loss, in many other cases this need may be fueled by lack of plani...

Financial tips for a 25 year old

Originally published at  BeingfinWise __ If you are 25 year old, there is a good likelihood that you would have started working or are likely to start soon. And hopefully start(ed) managing your own finances. So, what do you do next? The good news is that having a profession can soon lead to cash flows which perhaps wouldn't have seen in your student days. And that can be empowering in many ways. The bad news is that, if you are reckless with spending money, it can soon lead to a downward financial spiral. Managing your finances well can be a good first step towards a healthy financial life. And it starts with small steps.