Sensex nearing 47,000: Avoid these common investment mistakes

The BSE Sensex has crossed the 46,000 level. Before you get excited about the market, make sure you do not invest in the equity markets for all the wrong reasons. The stock market was at all time high when it crossed 20,000 for the first time and will be at all time high when it eventually goes beyond 50,000! You cannot control the market levels, but can surely control your emotions and avoid acting in haste. Avoid the following mistakes so that your wealth creation journey isn’t derailed.

Avoid excess review and monitoring: Life was simple when apple was just a fruit and the same applies to your portfolio management as well. Yes, you need to monitor and review your portfolio once every 6-12 months. But that does not mean that you need to act every time the market goes up or down. Remember, not reacting is also an action similar to the fact that sitting on cash is also a position you take in the market.

So, you do not need to switch your schemes or shuffle your stock portfolio unless there is a change in your financial goals or a major modification in the attributes of the schemes you are invested in.

Avoid FOMO, think of JOMO: There are many who could not take the benefit of market crash in March 2020 for varied reasons. So, now, with the market going up every other day, they are suffering FOMO –the fear of missing out. Don’t fear about missing out, but rather focus on following JOMO – Joy of Missing Out.

After all, most investors have learnt a very quick lesson about market turbulence this year. So, do not invest for a quick short-term gain as there may be some shocks ahead and the next correction may be triggered by some other event. Always remember that the market will give you opportunities, so don’t take any impulsive decisions based on FOMO.

Don’t book profits unless required: “I want to switch my equity mutual funds and stocks, which have given great returns in the short term, and will enter again when the market crashes.” This is the statement made by many retail investors nowadays.

Should you do it? The answer is a resounding no. Why? Simply because it’s not easy to always buy low and sell high. Being a salaried professional, when do you leave your existing job? You quit when you lose motivation for your old job, find a better opportunity elsewhere, or want to retire. A similar logic applies to mutual fund or stock market profit booking. So, unless you have a solid reason to book profits as mentioned above or have confidence to time the market, avoid booking profits.

Don’t play with your SIPs and risk profile: Becoming rich is easy unless you are in a hurry. Hence, do not stop your mutual funds’ systematic investment plans (SIP) or change the schemes to thematic or sector funds on the basis of their recent, high returns made from certain sectors.

Don’t get lured by the technology or pharma sectors which have given around 40 to 60 percent returns this year or a very recent banking and financial sector’s 30 percent returns in the last 2-3 months and also some of the international funds.

Remember that these are sector specific funds or stocks which behave in the similar fashion, they may remain lull for 5-6 years altogether and suddenly give you a 50-60 percent returns in one year. If you are bullish on a sector then do invest in the same but not before you check your risk profile.

Good time to correct your mistakes: Use the current market highs to come out of those stocks or schemes that are not aligned to your risk profile and asset allocation. Your earlier poor investments can be redeployed amidst the market high and can be realigned.