Five investing mistakes one need to avoid this New Year

It is of common observation that we tend to make investment decisions, including financial choices, without validating pros and cons. Read the story to know few mistakes one must avoid while investing.

Hyderabad:Knock Knock !! New year is here. Most of us might have decided or at least gave it a thought about financials for the coming year. It is of common observation that we tend to make investment decisions, including financial choices, without validating pros and cons.

Here is a list of five mistakes one must avoid while investing -

Investing before understanding the product:

Many people in excitement, by looking at the past returns, invest in products before understanding it thoroughly. This mistake can turn out to be costlier because, that product might be a good product, but the decision was made without understanding the volatility and the time period which you need to hold.

Immediately after purchasing, if that product turns out to be more volatile than you can take, you might prematurely book losses from it.

Investing before understanding the product.

Classic example for this case is - small-cap investments in 2017 that turned out to be risky in 2018 and 2019. Without understanding the volatility in small-cap funds and by looking at the lucrative past returns, many investors opted for small-cap in 2017.

Don’t be an Emotional Investor:

Many take their investing decisions emotionally. For example, when a product starts giving them more return in short term, they start loving it and they invest more money in it. On the other side when a product gives negative return in short term, they start hating it and they redeem their money from it.

Don’t be an emotional investor.

Remember “Greed & Fear” both these emotions are bad for your investment journey. It is always better, not to react for the short-term movements and be an emotionless investor. In long run, investors who doesn’t react to the short-term momentum tend to gain more money than an emotional investor who reacts and takes radical decisions.

Don’t invest based on tips from your friends and relatives:

Don’t make investments simply based on suggestions from friends and relatives. It should be remembered that they might have given suggestions based on their risk apatite and investment horizon, which is different from that of you.

Don’t make investments simply based on suggestions from friends and relatives.

So, it is always better to take desertions based on your risk apatite and financial goal. If you don’t have knowledge on completing your personal financial planning process, please take support from a good financial planner.

Investing without goals:

It is always advisable to align your investment with a goal. Investments without Goals, makes one to take miserable decisions in their investments. If have a goal aligned to it then will know the time frame of investment and select a suitable product based on the risk appetite.

It is always advisable to align your investment with a goal.

Buying too many policies, funds, stocks

Many people knowingly or unknowingly, do make a mistake of buying too many insurance policies / Mutual funds / Stocks. Thinking that they are mitigating risk in the portfolio by diversifying in many products / schemes.

Buying too many policies, funds, stocks

Frankly this over diversification kill overall return in portfolio and it makes difficult to track your portfolio at one go. So it is always advisable to have 1 Term Insurance policy, 1 Health insurance policy, 1 Mutual Fund each for your Financial goal.

(Authored by Sai Krishna Patri, Hyderabad-based Certified Financial Planner. Views are personal.)