10 Investment mistakes you should avoid
When I entered into this investment world 15 years back, I was trying to learn aggressively thereby making several mistakes. It took several years for me to realize the mistakes I was doing. In this article, I want to discuss about the costly mistakes I was doing and eroding my hard earned money. While it is important to look for good investment options to grow money, it is equally important that you should not ruin your money by making such big mistakes.
Investment mistake # 1 – Trading Vs Investment:
When I started trading frequently in stocks, one day I used to gain and one day I used to lose money. It took almost 3 years for me to know the mistake I was doing. If you are frequent trader, you always think of earning from short term. If you are a long term investment player, invest wisely in good stocks and forget. Track such investments every year and modify your investments accordingly.
Investment mistake # 2 – Aggressive investor Vs Conservative investor:
Do you know in which category you fall. If you are aggressive investor and investing in bank fixed deposits, you should question yourself. Last week I got an email to me from a reader stating, he is conservative investor and want to invest in stocks and double money in 2-3 years. Investors get into that trap and lose money and blame the equity markets. Do you know which category you belong to?
Investment mistake # 3 – Not realizing the investment mistake:
10 years back, based on a stock broker advice, I purchased a penny stock. Its stock price was getting hammered continuously for 3 months. I was still hoping to come out of such mistake and lost 90% of my investment in that stock. If I would have realized the mistake, I would have reduced the loss. How many of us are willing to accept the investment mistakes we are doing?
Investment mistake # 4 – Diversification of investments:
Do not put all your investments in one basket. How discipline are we on following this, unless we burn our fingers and lose money in equity markets. 8 years back, I invested Rs 4 lakhs entirely in mid-cap stocks. Midcap stocks boom got over and I lost 50% of money. How well are you planning and diversifying your investments?
Investment mistake # 5 – Historical return Vs future expectation:
While historical returns could be a benchmark in selecting an investment product, it should not be the only criteria. Future expectations should always be based on current situation and expected growth in the investment product. I purchased a stock earlier which gave 300% return in 3 years. In two years, the stock price got hammered and I lost 30% money. However in Mutual funds such huge drop may not happen due to its investment strategy.
Investment mistake # 6 – Don’t invest if you do not have plan:
If you are investing because one of your friend or neighbor is investing, then you are making a mistake. You should have an objective for your investment. Such objective would define in which investment option you should invest.
Investment mistake # 7 – Know the liquidity about the investment:
I have a friend who has invested in company fixed deposits. He was thinking he could get money in 2 years in emergency, but he missed the point that such company deposits lock-in period was 5 years. You should know where you are investing and whether you could get your money back in emergency. Based on this, you would invest in appropriate investment option.
Investment mistake # 8 – Timing the market:
Several investors think they can think of the market and play with it. It is very difficult for timing the market. In 2010, several big brokers indicated that Indian SENSEX crosses 25000. Even after 3 years, the SENSEX could not cross 21000. Investment in equity markets should be done for long term and avoid such mistakes.
Investment mistake # 9 – Asset allocation:
Asset allocation based on financial goal, tenure and risk capacity is the key for the success of the investment. Asset allocation at appropriate timings should be modified. When equity markets are touching new peaks, exposure to equity markets needs to be reduced.
Investment mistake # 10 – Too much of buying and selling:
I have observed some of the people who do too much of trading to increase the profits. Here what you are doing is not investment, but you are speculating, trading to make profits. Check with any of the person who is in similar behavior whether he made any profits. While he would not have made profits, his broker would have made profits by way of commissions.
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10 Investment mistakes you should avoid