Investing is an art, they say. Not without a reason. Your investment requires the nourishment of knowledge as you look to build a bright future for yourself and your family. But we all at some point have made financial mistakes. Here are 5 mistakes you might have made this year which could have been easily avoided:
• Invested because a friend told you so
Your office colleague flashed her portfolio. You were too impressed with what the person had
achieved by using the latest technology and limited resources at her disposal. She insisted that you
do it too. You decided to start with equity funds. You did that a few days before the Britain
announced exit from the European Union. You find now that your portfolio is down and you do not
know what hit you. The lesson here is that you must not rush to buy any financial product because
someone else did it. Always start by seeking professional advice based on your goals and needs.
Money management is no place to be hasty!
Whether it’s a matter of exiting your mutual fund after a sharp fall in share prices after the
announcement of the Brexit, or the discarding of all your 500 and 1000 rupee notes after the
announcement of demonetization, the lesson to be learned is: WAIT!
Share prices recovered smartly soon after and you realised you had already sold your units in equity
schemes at a loss. Investments in Equity schemes offered by mutual funds are mostly for long-term
investments. You need to stay invested and aim to benefit from ups and down in the market cycles
that follow. Give your equity investment a chance to grow by staying invested.
As for discarding your notes, they’re not just paper, they hold value! You needed to just wait for a
few days while the government decided their policies, and then you could have gone to the bank or
post office to exchange your old money for new money. It requires patience, but it could be the
secret you need, to set you apart from the crowd!
• Did not diversify your investment
Every other article on Mutual Funds talks about how you should not put all your eggs in the same
basket. Do you know why this phrase is so popular in the financial world? It is because it’s true. You
did not diversify your investment portfolio and when economic factors change such as Brexit, US
Presidential elections and currency note discontinuation hit the markets; your portfolio didn’t take it
too well. Different securities react differently to the same event and thus having invested in various
securities allows you to maximize your potential returns in any situation. So, make sure your
portfolio includes various investment areas.
• Timing the market
You spent another year listening to people on finance. You sought advice of multiple financial
planners. You heard a lot of friends make or lose money in the stock market. You wanted to know
the right time to buy and get started. You held back on your investments because you were waiting
for the Budget to be announced in February early this year. The Budget was announced, share prices
rose sharply. You spent too much time procrastinating and less time on seizing your opportunities. It
is a mostly a good idea to make a beginning and start somewhere. You can always make changes to
your investment portfolio if you feel you are being pushed away from your goals. But not acting is
surely not taking you anywhere.
• Inadequate research
Each year around January you scramble for investing in tax-saving schemes. You check with your
relatives or do a bit of research. However, tax planning is not about scrambling for money at the end
of the year. Mostly, a majority of the equity-linked saving schemes outperform traditional
instruments in the long run. However, you have not read enough about this to know. If you had
done that, ELSS in mutual funds would have been a natural part of your overall investments. So, it’s
always prudent to know what exactly each scheme does for you.
The bottom line
Invest after seeking adequate financial advice from your financial advisors. Start reading up more about things that influence your investments. Invest in knowledge before you seek benefits from your investments.
Mutual Funds are subject to market risks, read all scheme related documents carefully.