10 investment mistakes to Avoid

There are ten common mistakes made repeatedly by investors. You can significantly boost your chances of investment success by becoming aware of these typical errors and take steps to avoid them.

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.

8.    Unrealistic expectations

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 mistake that you know.

40 COMMENTS

  1. I have invested around 3 L into SBI life and HDFC Standard life insurance (Unplanned Investment). now the scene is these policies have completed 3 years and at present their fund value is less than 2.5 L collectively.

    My advisor (who is my friend apparently) is stressing on keeping investments for at least 3 more years and assures me that I will enjoy minimum double benefit. (which is hard to believe)

    I would like to know if this will really take good shape..? looking at the present situation; I am ok even if I am getting at least invested money back.

    Thanks in advance..!

    Regards,
    Manoj.

    • Dear Manoj,
      pl. see the portfolio of your investment.it is important to manage that .make a balance between equity & debt .putting all your money in equity may leave you in such situation.you can your self do it or takr help from your advisor.

  2. Hello Sir,
    My Investmentz are as follows.
    1. Government Provident Fund – Rs.6000/- per month
    2. ICICI Predencial Focused Bluechip Equity Fund – Rs.1000/- per month
    3. HDFC Equity Fund – Rs.1000/- per month
    4. Reliance Gold Saving Fund – Rs.500/- per month
    5. LIC Saral Jeevan Policy – Rs.255/- per month
    6. LIC Money Back Policy – Rs.268/- per month
    7. LIC Life Insurance – Rs.800/- per year
    8. Postal Life Insurance- Rs.2200/- per year
    9. ICICI Predencial Lifestage Pension Advantage Policy – Rs.15000/-
    per year
    10. PEARL’s Recurring Deposite – Rs.1700/- per year
    ARE THESE INVESTMENTS GOOD FOR ME? I am a salaried person. I pay Rs.5500/- per month For HOME LOAN. I want to invest Rs.2500/- per month more.Suggest me Two or Three Best SIPs. Please send me your Reply on my E-mail Address Also.
    THANKING YOU.

    Yours Faithfull,
    Mahesh

    • Hello Sir,
      My Investmentz are as follows.
      1. Government Provident Fund – Rs.6000/- per month
      2. Maxnewyark life insurance -Amway(Bigness Bildding)– Rs.65000/- per year
      3. LIC jivan Aanand– Rs.14000/- per qurt.
      ARE THESE INVESTMENTS GOOD FOR ME? I am a salaried person. I pay Rs.3883/- per month For HOME LOAN. I want to invest Rs.2500/- per month more.Suggest me Two or Three Best SIPs. Please send me your Reply on my E-mail Address Also.
      THANKING YOU.

      Yours Faithfull,
      Rajeev Kumar Singhal

  3. hi Hemant ji,
    My biggest mistake is to invest money in SIP in 4 MF scheme in one fund house since last 4 years,
    Option 1 -what if I go for STP from the other 3 fund and move all my fund to one fund of the same fund house. Do you think its a good idea?
    Option 2 – close the other 3 fund and open one new fund from other fund house?
    Option 3 – leave it as it is and go for new fund house?
    By the way after 4 years the value had appreciated to 17.45%.
    Wish I read your article four years back.
    Thanks for making us financially aware.

  4. Boss your financial literate series is gr8. I can say that your every point is making your readers gain financial knowledge. Keep on…
    Thanx a lot for this invaluable knowledge.

  5. Really your advice & the art of describing it are simply pleasant. My problem is in the mistake series 9. I have invested in Principal Tax saving SIP & Personal tax sever fund both in Principal MF in year 2008. At present the value seems to be less in totality. Should I hold the same for long term or sale it off & come back in right route. Pl advice.
    Thanks in advance …..
    Subhasis Gupta

  6. Hello sir , I am very happy to hear suggestions from you. I Have invested in some products
    1)L.I.C Endoment policy from 28/3/2005 10,000Rs Per year.
    2)L.I.C Asha Deep ” ” 7/8/2007 till 7/5/2012
    3)I.C.I.C.I Children plan ” ” 20/8/2008 12,000 Rs Per year.
    4)I.C.I.C.I Health plane ” ” 10/ 9/2011 20,000 Rs Per year.
    5)S.B.I life Unit plus -11 Regular ” ” 21/7/2009 till 21/7/2011 50,000 Rs per year .
    6)S.B.I life Smart Ulip ” ” 1/1/2010 till 1/1/2012 50,000Rs per year.

    and on December, i am going to invest in S.B.I Pention Plane . so ,tell me what necessary things to be taken in my portfolio.
    Thanks you ……..

  7. Thanks Hemant ji,
    will stop all sip from SBI except Emerging market and Gold fund,
    the next option is to buy Sip from 3 other Fund house, do you think I should have some debt instrument in my folio? I want to inform you that I m working in saudi arabia and it was easy to access SBI net work for this reason,
    and the interesting thing is that I have to wait a few more month before I go to india, then only I can get SIP dont in other fund, till then will it be advisable to
    continue the SIP in SBI?
    Thanks for your advice.
    Please keep posting your article.

  8. Thanks again, will you consider writing about how to prepare a will so that all my investment will be take care of after I m gone without creating any problems for my family, should I include the name of my wife in all my investment?
    Regards

  9. i want to invest in SIP. my monthly in come is 4000 Rs. Plz. suggest me to invest my money for 4-5 year

  10. Sir,
    Presently I am invested in Three SIP
    1. SBI MSFU CONTRA FUND DIVIDEND Rs. 500/-
    2. SBI MSFU EMERGING BUSINESS FUND DIVIDEND RS. 1000/-
    3. UTI CONTRA FUND DIVIDEND Rs.500/-
    I want to invest Rs. 1000/- additionally. Please suggest me the Mutual fund for this investment

  11. Hi Hemant,

    I am 28yrs working women. I have absolutely zero knowledge about finances, though i have invested in few MF’s, some one time investments and some via SIP. I ahve subscribed to your 8-weeks E-guide. However, given the time constraints that i have, managing a house, a 8month old daughter and my job would it be wise for me to get my invesetments planned by a financial planner?

  12. Hi Hemanth,

    Recently I have joined ,

    First decision I have taken not to go Child Insurance which I was planned

    IInd Immediately going for Term Insurance

    I say thank you very much for sharing your knowledge.

  13. I was also planning to take a Education insurance. I have changed my mind after reading this blog.. Thx Hemant

  14. Hi Hemant,

    I have query on loan-repayment.
    We have 2 home loans.
    1st is already fully disbursed and currently on the 5th year of payment and we are staying in that house.
    2nd is a new loan which is half disbursed (2 yrs over, full emi started and pinching 🙁 ..), still waiting on the builder to complete the house.
    My query is if we have some surplus cash (say 10 lakhs), is it wise to repay the old loan or use this money for the 2nd house and freeze the 2nd loan amt to a lower limit? One catch is that builder itself is not sure if they can complete the house within next 6 months and freezing the loan amt can be done only after registration as per my knowledge.

    Please advice.
    Note: Old loan int is 12 % and new ones is 11%.total emi 70k.
    Thanks,
    MB

  15. dear sir

    i want to take 4 good return sip mutual fund and i am a long term investor plz suggest me which one i have to take

    regards

    • Dear Pramod, as Sir Himant has clearly stated in article point 6 that 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.

      so we have to educate ourselves, and this is the only better way.

  16. sir my age is 35yrs & married have a mother and no kids but planning.

    I have 25000/- extra amount for investment every month in mutual fund in the form of SIP

    PLEASE suggest me some good mf. my target is to earn 15000000 to 20000000 after 20years

  17. hello sir,
    I must say that u r doing a great job.
    I want to open a sip, which one is best in 2013
    thank u.

  18. Hi Hemant,
    Your E-Courses are great.
    After reading articles , I am planning to start at least 1 SIP for now.
    I decided to go for HDFC top 200 through SIP of 5000 for 10 yrs. (based on its good record over yrs)
    I have few questions regarding SIP.
    1. Can I break SIP in mid say after 3 yr , any charges ?
    2. Have a SIP for 10 yr or
    Start SIP for 5 yr and after 5 yr start another SIP for 5 yr and remain invested with previous SIP , so that any time first one can redeem . Which one is good ?

    Kindly let me know your opinion.

    Thanks ,

    Regards
    Sandeep

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