Investors, be it novice or experienced, are now bombarded with advice, suggestions when it comes to making investment decisions, with some of them often being misleading. It could be advice on social media or someone bragging about investing lakhs in an equity stock expecting it to become a multi-bagger. Investors can be intrigued by this and invest in vehicles without conducting due diligence. That is how many might end up losing money.
It is imperative to understand that even the best investors are prone to making investment mistakes. Given that we have a variety of traditional investment options such as gold, stocks, mutual funds, to name a few, and the choice has further widened with cryptocurrency and NFTs, we need to be more cautious before investing.
Top investment mistakes and their impact
- Investing without a goal
Investments are short-term and long-term. You invest to build a corpus or for periodic inflows from your investments once you retire. Like in any other aspect of our lives, it is vital to have a goal before investing. It allows you to stay committed and invest in a focussed and streamlined manner.
If there are no goals set, you will always be unsure whether to liquidate your investments or stay invested.
- Not understanding the investment
Not everyone understands every financial instrument out there. Warren Buffett, one of the most successful investors globally, once cautioned investors against investing in vehicles or companies that they cannot comprehend.
If you invest in such offerings, it would be challenging to judge the future potential and inadvertently lose money.
- Burdening yourself with too much debt
People either buy things with their savings or take loans. Unfortunately, if you belong to the latter group, there is a risk of you overburdening your finances by taking on too much debt. While you may not do so intentionally, there are innumerable examples of people falling into a debt trap.
If the loan outstanding is over four times your annual income or if more than 50% of your monthly inflows go towards EMIs, it is a warning sign that you are overly dependent on debt. It is one of the top investment mistakes people commit.
- Not having a term plan
There can often be times when we are not prepared for some unforeseeable events in our lives. However, given how 2020 and 2021 have panned out, it would not bode well for you to think that nothing can happen to you or your family.
Having term insurance could help your family meet their needs if you are no longer there.
- Investing majorly in fixed deposits/PPF
While most people do not understand how finances and taxation work, it is imperative to understand that over-investing in PPF and fixed deposits may not necessarily help you in building your corpus. Many choose to follow what their parents may have done by relying mainly on these instruments. But inflation often outgrows the returns generated from them.
If you accept FDs and PPFs as the way forward, you are ignoring the power of equity and other asset classes. It means you are not letting money grow itself and are only relying on your savings to secure your future.
Take a step towards avoiding investment mistakes
Mistakes by investors are a part of their lives. But it is vital to acknowledge the wrong investment moves and not remain in denial. It is crucial to take these in your stride and move forward to ensure you do not repeat these investing mistakes.
One way to do this is by reaching out to a financial advisor who can help you with your investment decisions by taking into account your financial standing, investment horizon, age, risk tolerance and financial goals.