Hello fellow investors!
This Thursday, we are sharing a few mistakes that a beginner does when he/she starts investing and it is important that you understand them and act on it accordingly.
1. Not investing
The first and the biggest mistake investors and savers make is not doing it.
Don’t wait for that raise, inheritance, or lottery win. Start today, right now, with whatever you can.
Consider this: If you can save just 100 INR a day every day for 20 years, and earn 12 percent on it, you’ll end up with INR 30,48,395. That’s enough to change your life and the lives of those you love. So let's just start with keeping INR 100 aside.
2. Investing before doing your homework
When it comes to investing in risk assets like stocks, one mistake I’ve made is going on “gut instinct” and 20 minutes of Internet research.
When dealing with investments that can go south, don’t invest without a clue. If you’re thinking about stocks, there’s plenty of online research and information available free, not to mention TV shows and library books.
3. Being impatient
In a post called The 10 Commandments of Wealth and Happiness, the author, Stacy Johnson, offers this advice: Live like you’re going to die tomorrow, but invest like you’re going to live forever.
Stare at a newly planted tree for 24 hours and you’ll be convinced it’s not growing. Fixate on your investments the same way, and you could miss out on a game-changer.
As discussed above, your 100 INR daily grows into 30 lakhs over 20 years, you gotta be consistent and patient.
4. Not diversifying
There are two types of risk in stocks. The first is called market risk: If the entire market tanks, your stocks probably will as well. The other is called company risk: the risk a specific company will do poorly.
It’s hard to eliminate market risk, but you can reduce company risk by investing in lots of companies.
Can’t afford to own a meaningful number of companies? That’s what mutual funds are for. A mutual fund allows you to own a slice of dozens – even hundreds – of companies with an investment of as little as INR 500.
5. Taking too much risk
Everybody wants to double their money overnight. But if you’re always swinging for the fence, you’re going to strike out often.
Some investments are little more than gambling. Investments like options and commodities, for example, promise huge rewards, but the risk is also huge. Don't forget high risk = high returns.
6. Not taking enough risk
On the other side of the same coin, some investors stand like a deer in the headlights, unwilling to take even a measured amount of risk.
Instead, they keep their savings only in fixed deposits and bank, earning less than 6% (which is only reducing) and comforting themselves with Mark Twain’s expression: “I’m more concerned with the return of my money than the return on my money.”
Insured savings will ensure you never lose anything. But they’ll also ensure the purchasing power of your savings won’t keep pace with inflation. In other words, you’ll become poorer over time.
7. Paying too much attention
There is such a thing as information overload. Between the Internet, newspapers, magazines, and cable TV, it’s easy to get more than your fill of conflicting information.
Step back, look at the big picture, find a few financial journalists or others you trust, then tune out the rest.
8. Following the herd
One of the world’s wealthiest men, Warren Buffet, said, “Be fearful when others are greedy; be greedy when others are fearful.”
If you’re convinced the economy is going to zero, buy guns and canned goods. But if you can reasonably expect a recovery someday, invest – even if that day is a long way away, and even if it’s possible things could get worse before they get better.
We have seen the recovery that has happened from the below of March 23, 2020, of the stock market to current where we are almost back to what we were at the beginning of 2020.
9. Holding on when you should be letting go
Equity is best played as a long game. You should hold on long enough to see it through, but not knowing when to get out could cost you big.
Don’t obsess over your investments, but don’t ignore them either.
10. Being overconfident
The economy runs in cycles of boom and bust – when times are good, people often confuse luck with skill.
This is what happened during the housing bubble and the dot.com stock bubble and the past 4 months (March 2020 to July 2020). Being in the right place at the right time isn’t the same as being smart.
11. Failing to adjust
How you invest should change as your life changes. When you’re young, it makes sense to invest aggressively, because you have time to recoup from mistakes.
As you approach retirement age, you should reduce your risk.
12. Not seeking qualified help
While investing isn’t rocket science, if you don’t have the time or temperament, consider getting help.
The wrong help?
A commissioned salesperson more interested in their financial success than yours.
The right help?
A fee-based planner with the right blend of education, knowledge, credentials, and experience - you can contact us at ria.wealthcafe.in
Happy Investing!
Disclaimer: - The emailers are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.
