Financial Mistakes 5 common investment mistakes
Retail investors tend to be burdened with
information
on how they should go about investing their
money. Distributors, agents and fund houses
all play their
part in "educating" investors on this front.
Our experience with investors suggests that apart
from the aforesaid, there is also a need for
investors
to be aware of a few common and frequently
committed mistakes. We present a checklist
of 5 common investment mistakes that investors
need to steer clear of.
Not setting an investment objective
A large number of investors are habituated to
carry out their investment activity in a
haphazard and sporadic manner. Very often
they
fail
to set an investment objective which is a
basic
tenet of financial planning. Investors should
adopt
a more systematic approach to investing
by
creating
distinct portfolios for all their
needs i.e.
short-term (planning for a vacation),
medium-term (buying a car)
and long-term (planning for retirement)
needs
respectively. Setting of investment
objectives
also incorporates a degree of discipline
which is
a vital ingredient for the success of any the
investment activity.
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Not doing your homework
Investing like any other serious activity needs a
fair
degree of preparation at the investors' end.
Investors
need to gather information and acquaint
themselves
with all the options available to them.
Investing in
a given asset class
(for example fixed deposits)
simply because you have conventionally
done so is inappropriate. Investors have
a plethora of options
ranging from mutual funds, fixed deposits, and bonds
to small savings
schemes to choose from. After getting the facts in
place, investors should select instruments that are
best equipped to fulfill their investment objectives.
Succumbing to the "noise"
Every time the equity markets hit a purple patch,
investors come face-to-face with a lot of "noise".
Fund houses go on an IPO
(Initial Public Offering)
launch spree and distributors do their bit by
convincing investors that the recently lunched
scheme is the place
to be. For example recent times have seen a surge in
interest in funds of the flexi cap and mid
cap variety. Investors tend to succumb to the
noise and start
investing simply because everyone else is doing so.
The trouble is
that investors could discard their pre-determined
asset allocation and make investments contrary to
their risk appetite.
Investors must exercise a lot of discretion and
resist
falling prey to the herd mentality, especially at
a time
when everyone around them is busy painting a rosy
picture of the investment scenario.
Getting attached to investments
Investors must remember at all times that
investments
are a means to achieve ends (financial goals)
and not
goals by themselves. If investments have failed to
perform their requisite task, then investors
should be flexible enough to act on the same.
Investors should
never get attached to their investments and
stubbornly
cling on to them. Assess at regular intervals
how well
your investments have performed and initiate the
necessary corrective measures.
Timing the market
A large number of investors like to believe that
they
can time the markets; nothing could be farther from
the truth. If this notion was correct, we would
have experienced a surfeit of fund managers and
investment
gurus . Instead of trying to outsmart the markets
and
failing in the process, adopt a more scientific
approach.
Use the SIP (Systematic Investment Plan) route
and invest regularly to benefit from the markets.
Don't try to beat
the markets, join them instead!
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