Investments should be made in a planned and systematic manner to make the most of them. Any successful investor will tell you that there is no single secret to investing and it takes time, patience, hard work and discipline to become good at it. Now let’s see some common mistakes that investors should not make:
1. Acting without a plan
It is always important not only to plan your investment but also to work out your plan. This blueprint enables you to have a fair idea of how you are going to proceed with your stocks, bonds, etc.
You have to be clear in your goals and should have a thorough understanding of your goals. When you are saving for retirement, you should have a well-defined objective. By now you would be thinking about the importance of a clear investment strategy. You should identify what type of assets you are going to proceed with for investment and which objective complements your plan. You should be able to understand the nature of your investments. It is good to have a written plan at the outset so that you know how you are faring with your goals.
2. Having short investment horizon
Often people begin investing in order to achieve goals that are short term in nature. Such investors not only lose the opportunity to invest in high return assets but also the power of compounding which is fundamental that drives portfolio growth. Compared to this a long term investor can put their investment in high return assets enjoying compounding growth for many years and hence build greater wealth.
3. Ignoring your portfolio
Always ensure that you have a firm control of your portfolio. Do not interpret this as having to remain glued to your investments round the clock. However, checking it on a frequent basis would surely go a long way in assessing how you are performing.
4. Buying on tips
Another common mistake that a lot of starting investors make is to invest based on tips they receive from friends or family. Typically these tips do not have any supporting research and rational justifying the recommendations, and more often than not they originate from media efforts which can be. Next time you come across such an amazing tip, do not jump to act on it but force yourself to rationally evaluate it – gather all available facts and data and spend time analyzing the opportunity before you invest.
5. Impatient for returns
When we are investing, impatience is one of the prominent emotions that cloud our judgement. We should remember that in the case of stocks and shares, these businesses function in a manner different from our expectations. It’s better to build a long-term strategy and follow it.
6. Doing what everyone does
Here we have to be clear in one aspect. Each investor’s outcomes are different. For example, you would be deeply impacted by the actions of your friends, colleagues, etc. You can very well consult your friends, family, etc. But you should perform comprehensive research to be sure that it fits your needs.
7. Letting emotions into decision making
We are emotional beings and hence heavily prone to biases in our decision making. The field of behaviour finance has established that our financial decisions are sometimes guided by our biases rather than logic, which may lead to disastrous investing results. It is easy to get emotionally attached to an investment due to factors external to the business. Hence when taking investment decisions, one needs to take a hard look at emotions that may be creeping into decision making process. Decisions should be taken based on hard data, facts and critical assessment of the investment opportunity alone.