STOCKS are the most recommended form of investing your money to grow corpus and get invested for long term basis. However, there comes such situation when people invest just for the sake of investing. There exists a trend when people invest to get some tax benefit. But how to decide whether the invested money is safe or not? In order to safeguard your investment from uncertain market conditions, we have curated 10 common mistakes while investing in mutual fund that an individual generally do while making an investment in various schemes of mutual funds. Read carefully to get a clear picture.
UNDERSTANDING YOUR OBJECTIVE:
The most common investment mistake while investing in mutual fund people do is not giving proper attention to the investment objective. For most of the people, this isn’t an issue – their goal with investing is to have a stable income after retirement or children’s education goals. Suppose, if you are investing towards retirement planning, you need to figure out exactly why you’re investing, how far off that goal is, and how much risk you can tolerate in terms of investment. Without generating proper details of the objective, one cannot decide what it takes to have a proper investment.
LACK OF RESEARCH:
Market is all about doing speculations all the time. For that, Research plays a vital role when investment is concerned. To build a strong and diversified portfolio one must understand the types of schemes and funds available to him/her to avoid such common investment mistakes.
BUYING HIGH AND SELLING LOW:
Many people follow their instincts which says them to buy some stocks after a day or a week when they’ve done really well. Suppose some stocks have gone up by 5% in the last quarter, they must be trending, I should buy in. On the other hand, people sell their stocks when an investment drops. They see losses on particular investment over a period of time and they get scared and panic. Buying high and selling low are strategies that are used always. A much better approach should be followed where one must ignore the lows and highs, buy a little bit each month, and sell a part of it.
FORGETTING ABOUT INFLATION:
Inflation is a real thing which can’t be ignored. Prices continue to rise up and if you don’t account for that down the road, you’re going to find yourself in a serious problem which can’t be sorted out easily. For instance, assume that prices are going to go up (at least) 4% per year and thus you are going to need that much more to live on in retirement.
DO INVEST DIRECTLY IF YOU ARE WELL VERSED IN IT:
A proper knowledge about dealing in stock indices is most important part and a common mistake carried by investors. As a result, it is advised to go for an investment advisor who will help in creating an optimum portfolio and allocating funds in a diversified way. Avoid risking your hard earned money in such a way and adopt for a better source for investment.
LACK OF PATIENCE:
As said by Warren Buffett “The stock market is designed to transfer money from the active to the patient.”This statement explains the need of patience in the investment genre. Most of the investors get impatient by the fluctuations in the market indices which eventually lead to redemption of stocks.
WAITING FOR RIGHT TIME TO INVEST:
The moment you decide to go for investment it becomes the right choice to venture into stock market. Also you should not be buying stock in companies if you don’t understand the business models and the idea behind the company. As a result, you won’t be able to predict whether the company will grow in stock market.
NOT MONITORING YOUR INVESTMENT:
By now, we have discussed some of the major aspects related to investing. Similarly, the importance of conducting periodic portfolio reviews and evaluation cannot be ignored. Further, your investment should be periodically monitored to avoid the chance of fallouts and the deviations that can be rectified after a specified time period. With the passage of time the risk bearing capacity changes as per the requirements of the investor, at this point of time, the role of investment advisors comes into picture.
INVESTMENT FOR SHORT TIME PERIOD:
One of the common mistakes concerned with investment is that investors tend to prefer debt funds more than equity funds because of liquidity factor and risk involved in it. People do not consider keeping their funds for longer duration as they feel it less fruitful in terms of generating returns.
NOT DIVERSIFYING THE PORTFOLIO:
While professional investors may be able to generate excess return over benchmark or we can say beating the benchmark by investing in a few stocks. At the same time common investors should not try to do this on their own. Always stick to the principle of diversification. This is the rule that should be kept in mind all the time to success in stock market and to nullify the common investment mistake. As a general rule of thumb, one must not allocate more than 5% to 10% to any of the investment.
Ideally, you will not be committing too many of these common errors in investing. However, the fact of the matter is that the majority of investors, in most cases, will continually fall back to making some of the mistakes which we have discussed in the article.