Being rich, growing their financial worth, and livinga lavish life is something that most people envisage for themselves. One way to get to this dream is to invest your money. Smart investment decisions help you create wealth while beating inflation. However, sometimes you might not see the returns you expect. Here is a list of investment actions that can hinder wealth creation for most investors. Go through them and see if you are making them too. If the answer is yes, you can follow the tips given below:
1. DIY investing without expertise: The Do It Yourself model can have certain benefits and disadvantages. While you end up saving money otherwise spent on advisor fees, you also risk committing errors if you lack the required expertise. It can take a considerable amount of time in researching and analysing the market. This is why the DIY investing model (primarily in stocks)works for seasoned and experienced investors only. It may be advisable to adopt this style only if you have adequate knowledge about investing and are sure of your decisions. For others, safer options like investing in hybrid, equity, or
debt mutual funds through a systematic investment plan can be more suitable.
2. Over diversification: The line between diversification and over-diversification is often a blurred one. Ideally, an optimally diversified portfolio contains a mix of equity and debt mutual funds, bonds, direct equity, gold, real estate, etc. The purpose of diversification is to negate the loss of one asset class with the profits of another. However, if you end up over diversifying, you may increase risk by exposing yourself to extreme volatility. Hence, try to strike a balance, and in case of any confusion, you can consider taking help from a professional financial advisor.
3. Acting on impulse: The news can sometimes be leading and coerce you into making decisions in haste. Remember that while options like debt mutual funds are comparatively low risk, stocks are different and likely susceptible to volatility. A sudden drop in performance does not always translate to a loss. What is more important is to take a stock’s past performance and look into the company’s future long-term earning potential.
Gauging these aspects can be a lot more beneficial than acting on impulse and selling your stocks over speculations and sensationalised pieces of news.
4. Investing in instruments, you do not understand: You might not understand the different types of investments and their role in wealth creation, leading to poor decisions. It can help to read and research about different investment options like equity and debt mutual funds, bonds, stocks, exchange-traded funds, government-backed traditional investment/ saving instruments, and more, and invest in an instrument only as long as you understand the scheme, theme, style, and potential. In some cases, opting for a
systematic investment plan(SIP) over a lump sum investment may also be advised as it gives you time to gauge the performance of your investment and distribute risk over some time.
To sum it up
There is no precise investment strategy, and what works for someone else may not necessarily work for you. For instance, money market
mutual funds may be suited for investors with a low-risk appetite. Alternatively, high-risk investors can concentrate more on equity. It is important to understand that everyone’s goals, income, investment capacity, and risk differ. Hence, it never helps to simply follow a trend or mimic a peer’s investment strategy. Instead, try to analyse your own needs and make decisions accordingly. And in the case of any doubts, never shy away from asking for professional guidance and assistance from a financial advisor.
Disclaimer: The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives (“entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.