VER watched any saas bahu sagas on television? How many blunders the protagonists in these serials make! And for their howlers, they are beaten up, jailed and even murdered (only to miraculously become alive again!).
But, alas, life is not an Ekta Kapoor soap where you can make umpteen blunders and get away with it.
For your investments, you might have to pay a heavy price for even small mistakes that you do. Here are the seven most common blunders that investors make.
1. Believing that trading is the same as investing
When you buy and sell stocks and mutual funds at the drop of a hat (read – without any research or planning), you are essentially ‘trading’. This will not help you to build long-term wealth. Yes, this is a fantastic way to make money, but for your broker, not you!
2. Being too conservative with your money
‘Real returns’ is the keyword here. These are returns post inflation. Putting away money in safe options such as bank deposits, Public Provident Fund (PPF) and so on might give you a negative real return. This is true especially in times of high inflation, such as now.
3. Being too aggressive with your money
This is just another way to lose money. Pumping money into high risk avenues, such as equities, without understanding can prove dangerous. A Warren Buffet saying sums it all up -- To finish first, you have to first finish!
4. Keeping the ‘duds’
I know of a person who had invested in unheard companies such as Patheja Forging, Shaan interval and Silverline. He refused to sell on the belief that he would earn good returns over the long term. Now, all the promoters of these companies are absconding!
It is important to invest in good quality stocks, choose a good fund manager, invest small amounts at regular intervals through Systematic Investment Plans (SIPs) and hold for a long term. That will make money for you.
5. Incorrect asset allocation
Too much of debt for the long term or too much of equity for the next quarter, is a sure fire way to leave you with little returns. It is wise to build a portfolio based on your risk capacity and financial goals.
6. Timing the market
Even experts cannot time the markets, leave alone investors. No one knows where the markets are headed in the short to medium term. Hence, it is foolhardy to time the markets. Instead, a disciplined investing, irrespective of market levels, pays off in the long run.
If you hit a couple of ‘home runs’ (as the Americans say), you start to believe that you will continue to hit home runs regularly. This is true for most of us -- we attribute our recent success as our creation and therefore we think we can repeat it. This overconfidence can lead to a big portfolio disaster.
So, the next time you see the vamp taking over the good guy in the serial, think of your investments and promise yourself not to fall prey to these mistakes.