1. No Plan for investment
People do invest in products but there is no plan. In the name of insurance, mostly investments are made. Even in case of mutual funds, there is no strategy, it is just a clutter of products which does not carry any meaning when seen together. No wind is right unless you know which harbor you have to reach.
2. Too Short of a Time Horizon
People forget that the most important tool of wealth creation is time in hand. People want quick money and even though their financial goals like retirement, kid’s higher education etc are far off, they still want quick return. At times to make quick money, they take undue risk like Futures and Options, trading etc.
3. Chasing Performance
Investments are made in funds which has given the highest performance is last year. Now a days, gold is preferred as it is rising. Recent past performance is no measure to judge future performance. Investor should look at past track record like 5 year, 10 year return and that too just as one of the tool to select the fund, not entirely depending on that also.
4. Watching the Markets and Predicting Them Is the Key to High Returns
One of the most common mistake investor make. Market is complex animal and cannot be predicted by anyone. Even the professional managers can’t predict it. The more investor tries to do it, the lesser are the chances of good return. In stock market, inactivity plays more role than activity.
5. Mixing financial vehicles: insurance with investment
Insurance is for present planning– “ what if the bread earner is no more today” and investment is for future planning – “ after 10 years, I need to marry my daughter”. Mixing these two makes no sense and investor should keep it separate. Buying Term Plan for insurance need is the best policy.
6. Following the herd
Investment is not a game of football where team work is required. It is a game of chess where each individual has to plan for his unique need and situation.
7. Churning your investments
Frequent changes in portfolio without any plan or just to increase the return is not a right strategy. It only cost of taxation and other charges. Also, many distributors and banker advise you to churn very often as they meet their sales target and you are no more than just a TARGET.
Return out of any asset class depends on economic condition. If inflation is high, FDs give more return and if inflation is low, they give less. Equity funds will give return which are more or less in line with the growth of the economy. Investment made just to make high returns are usually unsuccessful.
9. Refusing to Accept a Loss /mistake
What would you do if you have taken a wrong route? Obviously you will return back, though it may have cost you time and money. But the same thing does not apply with most of the investors when they have chosen a wrong investment. Correct yourself, if you find that there is a mistake, don’t hand up with that investment.
10. Over monitoring Your Investments
Many people look at their portfolio so frequently that they in a way become addicted to it. One should always give time to investment to grow and then reap the benefits. Over monitoring would mean that investors are emotionally attached to market movements and this is one of the biggest reason of people not making good returns.
Please share other common mistakes that you know.