Are you keen on beginning your investment journey and worried about making mistakes? It is a well-known adage that people should learn from their mistakes but, in the investing arena, we can also learn from other people’s mistakes and ensure that we avoid them without stressing out too much. Investing always involves some amount of risk but knowing what factors and aspects to avoid can help us invest in a manner which mitigates risk considerably and puts us on the path to generating and accumulating wealth over the longer term.
What are the 5 common mistakes to avoid?
Here is a list of the most common mistakes in investing and how to avoid them while creating a portfolio you can be proud of.
Being unprepared and unfocused: Even if you begin investing with a small SIP, and trust your fund manager to make the difficult investment decisions, you need to know and understand various aspects such as your investment goals, your time horizon, your risk appetite, and what kind of funds you want to invest in. If these aspects are not clear at the outset, you will find it difficult to invest optimally.
Not being patient: Some of us look for sudden and major returns from our investments but, before investing, we should understand that this is a long-term commitment and we have to stay patient and committed to receive robust returns. If you withdraw your money at the first sign of distress, you will only end up denting your wealth and investment journey.
Not diversifying your portfolio: We have all heard the saying – do not put all your eggs in one basket. The same applies to investments. If you fancy one sector and park all your money in just one fund type, you face higher risk of losing wealth in case of a market fall. Instead, if you diversify your corpus across various categories, you will be able to withstand market volatility in a better and more sustainable manner.
Taking emotional decisions: Almost all treatises about money prohibit investors from making one cardinal mistake – letting your emotions override logic. Money is an extremely emotional topic for most of us, and, invariably, we end up taking emotional decisions which stand us in poor stead. Resort to calculations and logic when taking money decisions and take emotion out of the equation for best results.
Chasing trends: The market is ruled by a variety of trends and cycles but chasing these trends blindly and investing without understanding and analysing can force you to lose your hard-earned money. Instead of chasing trends, invest for the long term and look for sustainable growth.
Now that you know which beginner and rookie mistakes you should avoid, you are adequately prepared to embark on your investing journey. Do not let the market scare you but also do not take it lightly. Study and analyse the market and know your biases and goals before taking decisions. Remember, investment is like a long-term relationship and you will have to wait before you can enjoy the fruits of your labour.