12 mistakes every early financial investor should avoid

Naval GoelPolicyX.comYoung investors usually make certain mistakes early in their life, largely because they don’t have anyone to guide them on wealth creation. They are also hesitant to seek expert advice from professionals and are often lured by schemes that promise quick money. They end up eroding their savings and exit the investments no sooner they begin. This is a common trait with most young people who have just started earning.If you have just earned your first salary and are eager to invest some money that can generate reasonable returns in the future, here are some investing mistakes that you should avoid.1. Withdrawing all your salary at onceWhile it may sound thrilling, withdrawing your entire salary as soon as it’s credited in your bank account, won’t leave you with any money to invest. Remember the old adage: money saved is money earned. Also, the more money you have in your hand, the more is the urge to spend. Set e-transfers in your salary account so that utility bills are automatically deducted on their due dates and you don’t need to withdraw cash.2. Landing in debtMany young people, who have just started earning, often take up multiple credit facilities without realising the long-term implications. Plastic money can land you in a debt trap. Credit card companies levy a minimum of 3.49% monthly interest on outstanding balances, which is more than a whopping 41% annually, excluding late fees. People often take high-interest personal loans to pay off credit card dues. It’s a double killer and gorges on your savings. Try to spend in cash as far as possible. 3. Not taking risksYouth is the time to take risks. This won’t be possible when you are in your forties, have a family and kids, and old parents to look after. The number of dependents increases as the years pass. Take risks when you are single. You have the years on your side to cushion a fall. Take expert advice and invest your money in equities and mutual funds. Systematic investment plans (SIPs) in mutual funds is one of the best ways to create wealth over the long-term. 4. Buying policies from friends and relatives Never buy an insurance policy from people close to you, simply because they are forcing you. Every family has someone or the other who is an insurance agent, and simply because you can’t say no, you may end up buying a policy that you don’t need. Never fall into this trap. Research and buy policies directly from the company. You can also compare the policies online and subscribe the one which best suits your needs. Better still, hire an advisor or consultant. You have to pay him/her, but it’s still worth your salt. 5. Timing the marketYou should start investing as early as possible. There’s no “good time” to start investing. Many young earners wait for an opportune moment. But the time never comes. If you want to create wealth over the long-term, invest early. Your money will have enough time to grow. Invest monthly, weekly, or quarterly to benefit from fluctuations in the market. 6. High returns in short-termMost youngsters want to get rich quick and enter the market to earn some quick bucks. They are impatient to wait for years. If you have the same idea, be careful. You may end up taking hasty and wrong decisions. Short-term money making goals are often hampered by market conditions. Investing for the long-term is a prudent idea. 7. Investing in unapproved instruments Young people, who are just into their first job, often make the mistake to invest in schemes that are not approved by the relevant authorities. They are lured by get-rich-quick schemes. These include chit funds, hundis, and dabba trading systems. Over the past few years there have been several instances of chit fund scams involving money worth thousands of crores. Many innocent and unsuspecting investors lost their entire life’s savings in these scams. Avoid such schemes like plague.8. Not planning for retirementThis is one of the biggest mistakes made by young people. Retirement seems far away when you start earning in your mid-twenties. Retirement plans are usually put off for a later time. But responsibilities in life increase as you grow old. By the time you realise the need to save for retirement, it maybe already too late. Start investing in a pension plan, or a public provided fund, after the first salary is credited in your account.9. Care for your healthIt’s important to invest in a health insurance policy as soon as you start earning. The earlier you invest, the lower will be the premium and it is easy to buy one, because you will be less prone to illness. Add your spouse and children to the plan later on in life. Medical bills can shoot through the roof if you don’t have a health insurance. Subscribe to a cashless policy where you don’t have to take the pains of settling the bills yourself and get reimbursed later. 10. Pursuing mediaYoung investors are often swayed by financial newspapers and TV channels. While these are good sources of information regarding the markets, don’t follow the tips blindly. Remember, experts appearing on these channels may be interested in their stock recommendations. Try to follow the markets yourself and take informed decisions. 11. No idea of how much to investPooling in all your money in a single investment, at one go, is a common investment mistake. Invest only after you have paid off your regular expenses. Invest at a regular interval, instead of a lump sum. This helps mitigate the losses. Treat all your investments as a continuous process.12. Depending on past performanceMany newcomers depend on the past performance of an instrument to take investment decisions. But past data can’t guarantee future performance. While past numbers are important, it’s not the only criterion for investment. Try to learn how a stock or fund is poised for the future.Smart investing is the key to create great wealth. Remember, you can’t become rich overnight. It takes time and patience. Invest wisely and seek professional handholding whenever in doubt.