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I feel that this is one area which we should all be aware of as investors. If we know how to avoid the pitfalls then it would be much easier to get good returns on our investments. Knowing the areas where most people go wrong would help to stay on the right track.
Following are some of the areas I believe that most investors (both newbie and experienced) go wrong. There are more but I have tried to capture the main ones here.
Not having an emergency fund
This is the first and foremost step that should be completed before starting any investments. Life is uncertain and brings a lot of unexpected events. Circumstances such as job loss, medical emergencies can put a heavy strain on finances. At that time, if we don’t have an emergency fund to tide over the crisis then we would have to dip into our investments. This would deprive the investment of growing over the long term.
Investing blindly
We all have friends and others in our circle who are always willing to share the hottest investment tips with us. Maybe it’s a new business that has just been started or a stock that is expected to jump up in the next few days. And we blindly follow that advice. It has been seen that most often than not, it results in a loss. It is quite possible that our friend also came to know about it from one of his friends. Always do thorough research before investing your hard-earned money into anything.
Not investing based on risk appetite and time horizon
We are all unique when it comes to our risk appetite and goal horizon. Some of us may be aggressive investors and like to allocate a higher percentage of their savings to equity. While others may have a moderate risk appetite and like to keep a balance between equity and debt. It is always to gauge our risk appetite and goal horizon before investing.
Not linking investments to goals
Most of us when we start investing, we just put our money into something just for the sake of trying it. If it gives good returns over a year then well and good. Else we withdraw the money to invest into something else. As a result, the money never gets a chance to grow. On the other hand, if we had tagged that investment against some future goal says buying a house or a car then we would have never withdrawn it. This is because, in our mind, we have visually linked it to that goal.
Patience is the key to successful investing
Last but not least. They say patience is a virtue. It is the key to success. And they are not wrong. Most of the millionaires that we see today became rich after 50. Wealth creation is a time taking process. It does not happen overnight. Unless we have inherited a large amount of wealth or committed some crime like burglary, it takes time to accumulate wealth. Most newbies panic when there is a downward movement in the stock market. And they sell all their investments at losses to prevent any further loss. But such market corrections are expected in equity. It is volatile and therein lies the opportunity to book profits. If the market never goes down, how will we get an opportunity to buy good stocks at low prices? So my friend, be patient and invest for the long term.
Hope the above tips helped you to know about the mistakes which we should avoid while investing. Please comment and let me know if you have any more questions. Wish you the best of luck in your journey. Happy Investing 🙂