March 15, 2022
Here are five investing mistakes that beginners often make:
- Investing without a goal
In all areas of life setting goals is extremely important. Only after you set your goal, you are focused on achieving it. Investing without a goal will lead to unfocused approach which includes chasing false trends on the internet, investing through tips. Once you have a goal in mind, you get disciplined and achieving your goal becomes your first priority. Goals are like blinders that are put on horses to not distract them from winning the race.
- Not understanding Risk Profile
As important as it is to set a goal, understanding the risk profile is equally important. Warren Buffet rightly said that Risk comes from not knowing what you are doing. Risk profile is assessed by considering your ability to take risks and willingness to take risks. In mutual funds, there are different investment mandates, risk associated with every fund differs because of different scheme objectives. An equity portfolio will have more risk associated than debt portfolio. Thus, you should always assess your risk appetite and ask questions before investing.
- Attempting to time the market
Trying to time the market leads to killing of returns. Successfully timing the market is difficult to achieve. Everyone tries to sell off the investments when they feel the market is going to crash, and buy when the market hits bottom. These are based only on prediction and might not always be true. By redeeming the investment from time to time, the investor may lose out on various opportunities in the market. Disciplined investing is required to stay invested through the volatility and make good returns in the long term.
- Not diversifying sufficiently
“You should not put all your eggs in one basket” is a popular proverb. It simply means one should not concentrate all resources in one area as one could lose everything. You should invest in various asset classes to diversify your portfolio. Insufficient diversification leads to higher volatility and can lead to investment loss. Always make sure you are adequately diversified, and always think of your portfolio in percentages terms rather than amount terms, as it helps to keep things in perspective. Diversification is not just required on asset class level, it is also needed at sub-asset class level, like Large cap, Mid cap and Small cap in Equities.
- Using wrong source of information
Avoid taking investment advice from those who don’t know your personal finances. The quality of your information depends on the source, having incomplete or incorrect information is very common due to poor sourcing of information. You should always do your own due diligence before investing money in the market.
Always Try to learn from your mistakes.
An experienced, well-managed and independent financial wealth advisor can be an important ally to help you minimise mistakes and maximise chances of financial success. Go invest now!
