Investing is the most crucial aspect of building up the wealth. While everyone knows they should invest their money, not everyone knows the intricacies involved in Investing and thus end up making mistakes. So, what exactly are some of the investing mistakes and how can we avoid them? Below are some of the investing mistakes that the people generally make:
This is a very old saying in Investing and still the most relevant one – Don’t keep all your eggs into one basket. One should never put all or even a large proportion of money into one kind of investment. The more diversified the investment, the better it is. No matter how lucrative and safe an investment looks, you cannot guarentee the long term success of any investment instrument. For e.g. One should not invest all or over-invest their money into gold, real estate, stock or FDs. One should look for a portfolio which is well diversified and never invest more than 50% of their money in any one instrument.
2. Buying dear and selling cheap
The most successful investors and businessmen follow one simple rule – Buy cheap and sell dear. However, there are many who blindly follow the opposite of it – Buying dear and selling cheap. For e.g. At a time when the real estate bubble is forming at a rapid pace, more and more people are taking loans to finance their new homes. Also, people buy stocks when the stock market is in a surge and not when the stocks are cheap.
3. Postponing your investment decision
Many people consider their investments as a liability and give them low priority. They postpone this in order to afford luxuries. However, this is not a good path to follow. One basic rule of investing is to pay yourself first (meaning – adding to your investment portfolio) before you go on spending the rest of your money.
This is a common investing mistake that people make. People want to make money quickly and thus put their money in investment houses that promise the best returns, without themselves doing a research. Though you may make a decent amount of returns over a period of time, the net return would most probably be lower than a person who does thorough analysis with his returns.
Also, in order to make money faster, they put their money in schemes that are only meant to make the investment houses rich and are sometimes fake.
5. Heart over head
People, many a times put emotions before practicality in their judgement. For e.g. people are sometimes emotional when it comes to investments like real estate, FDs and gold. This imprudence, many a times, leads to reduction in their wealth. An investor must always make a thoughtful and prudent decision without it being affected by anything else.
6. Jumping on investment bandwagon
People generally invest in opportunities which are “Currently Hot”. Remember one thing – if an investment option is “Hot” and it is already in the news, general people, most probably, won’t make any money out of it. Following the crowd can make you lose your money. Buying an investment when the price is going up can only be used by speculators to make money. People who try to follow the same can land themselves into trouble.
Short term profitability can only be earned by speculators not investors. And speculating – no matter how many people want to justify it – is simply a gamble. You win some of the time while you lose some of the other time. Going long ensures that you have sufficient profits and minimum losses. One caution though – do not invest blindly. Do a thorough analysis of the portfolio where you are investing.
8. Ignoring Tax
Tax is a devil which discreetly makes a hole in the profits that you may earn. Look for investments which are tax free which would invariably improve the overall returns. If you don’t pay attention to taxes though, you may find your returns deplete substantially.