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Major Investment Mistakes that Investors do
As an Investor and During financial management, I've done/ seen plenty of big investment mistakes. Though I have highlighted many a times and cautioned during my posts and through Images so Now Writing a blog on this
The major mistakes are
- Trying to time the market, Not investing globally
- Concentrated folio.
- One of the biggest? Not investing at all -- As MarK Gunther says -"Biggest risk is not taking a risk"
- Thinking irrationally about risk
In my opinion as a financial Guide, We need to invest if you want to grow wealth. Participating in financial markets is a great way to get your money working for you so you can increase your assets over time.
To help you do just that, here are four mistakes to watch out for with your own investments — and a handful of simple strategies to keep you on the right course over time.
Timing the market
As Warren says - It is the time in the market that is important not Timing the market
It's tempting to think that you can avoid recessions and market downturns, because these events look so obvious in hindsight. The problem is, that's the only time when the path is crystal clear: once it's behind you.
In 2020 during the crash many investors became fearful that was obvious and were trying to time the market and kept trying. Ultimately many lost once in a life time opportunity to invest at prices that were in 2012. Even few wanted to exit as they were seeing the notional loss. I was bit harsh that time with some saying that there is no loss or profit till that is booked.Now they bless
It's easy to think you would have known better with the help of hindsight. In the present moment, though, things are uncertain. Trying to guess what the market will do next leaves you susceptible to emotional decision-making, rather than rational planning.
We expect ups and downs along the way, but as long as you stay consistent — and stay in the market, rather than jumping in and out — you'll be much better positioned for success.
Peter Lynch once said he never leave even his single penny not being invested as he can't time the market
Thinking irrationally about risk
Most people understand basic concepts around investing and risk. They know that investments come with risk of loss, and that the higher the potential reward the more risk that's required.But people overestimate their own skill while downplaying the role of randomness in outcomes; they know unfortunate events happen but tend to think about bad things happening to other people, not themselves.
This can lead to some really big investing mistakes, like:
Making speculative bets in the market, rather than maintaining a diversified portfolio with an appropriate allocation for both their risk tolerance and ability to afford risk.
Looking at others returns rather than looking on their own risk profile and learning themselves
If one attributes the positive outcomes entirely to their skill and bad outcomes entirely to bad luck ( Most robin hood tip followers do that) — which can pull down the quality of future investment decisions Ignoring risk entirely when evaluating an investment that is emotionally appealing.It's hard to maintain a completely rational, objective perspective about our own money.
Maintaining concentrated portfolio positions- Concentration risk, on the other hand, unnecessarily does the opposite to your portfolio: it increases the investment risks you face and introduces higher volatility.
Concentration means - Putting all your money in few stocks or just in 1-2 high beta mutual funds just in sake of getting quick returns. But that factor put you in high risk too.. Some customers / friends allocated too much 15-20% in single stock, Till the stock price rises all looks good but once it starts breaking then you loose the most.
One need to make sure to advise clients to ensure that their is not too much concentration of the folio in single stock or also when you make a mutual fund folio it has to be properly diversified.
General rule of thumb is to limit exposure to any single stock position to no more than 8-10% of liquid net worth. There are exceptions, of course, but this is a good starting guideline to use when considering whether to sell or hold a position.
Not investing altogether
There's no shortage of investment mistakes you can make. But perhaps the biggest is a bit counter intuitive: not investing at all.
I usually see this take one of two forms:
Someone always finds reasons to wait to start investing: they'll get started when they have more in savings, when they make more money, when something about the market changes, etc.
Someone builds a great savings habit and amasses a lot of cash, but leaves it all in the bank because they are afraid of taking any investment risk at all. Banks actually eats your money if you take into real rate of return that takes inflation into account.
In the first case, this is a huge mistake because the biggest advantage you can give yourself when it comes to growing wealth is the amount of time you give your money to earn compounding returns.
Warren Buffett isn't insanely wealthy because he's an investing genius (although he certainly is good at it). It's because his money has compounded for over 70 years, thanks to the fact that he started so young.
Don't make excuses to start investing. Do it now, and refine and improve your approach as you go.
In the second case, the mistake here is failing to understand that having cash sitting around not earning anything is also a risk. People feel lulled into a false sense of security when they have a lot of cash when they fail to understand that money is losing purchasing power over time thanks to inflation.
Yes, liquidity is important, but if you don't need that money for many years, growth is also critical. Have a strategic way to determine how much cash you truly need on hand — then consider investing the rest.
Simple strategies to improve your odds of success
These aren't the only mistakes you can make with your investments, but they are some of the most common and widespread that I see in my work as a financial planner. If you want to avoid these yourself, you can keep the following basic strategies in mind:
Choose a strategic investment plan and stick with it
Invest for the long term and avoid high-risk approaches like day trading, speculating, or market timing
Know both your tolerance for risk and your capacity to take risks. Then, think as objectively as you can about risk (and know that bad things can happen to anyone, even you!), even if that means bringing in an objective, outside party to help you make decisions
Maintain a globally-diversified portfolio to reduce risk and volatility
And of course, just get started. There's no such thing as a perfect investment strategy, or the perfect portfolio. Some mistakes along the way may be inevitable, but the most important thing is getting in the market and staying there as long as you can.
Hope this article will help the reader in their investments.
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Ending my note with
🌼🌼🌼Wishing you all a very Happy New Year 2022🌼🌼🌼.
May god bring the peace and much needed end to this pandemic to make everyone happy.
📈 HAPPY INVESTING 📈📈
