Investment Plans 422 views January 22, 2022

Achieving financial goals rests on how efficiently you nurture your investment portfolio over time. Like – is the investment amount you put periodically attuned to your goals? Whether you’ve trusted the right financial instrument? How to hold your nerve if investments do hit a rough patch? Often people err on these aspects unknowingly and later wonder what went wrong. Sometimes one realizes mistakes when the damage is already done! What he does afterward is damage control, greatly limiting his possibilities of touching investment heights. So, if you are new to investments or have invested but not followed the basics right, trust us to guide you through. In this post, we’ll caution you against investment mistakes. While explaining the mistakes, we’d leave you with a remedy too. So, read on!


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Basic Investment Mistakes

Investment mistakes stem from inadequate knowledge, following the strategy of the peer group, not being able to allocate investments efficiently across financial instruments, etc. Let’s check how these investment mistakes can cost you.

Investing Without Knowledge

Investing without knowledge could only sink you financially. For instance, someone not adept at stock investments runs the risk of losing money. Acing the stock investment challenge requires the expertise of buying the right scrip at the right time. Selling stocks at the right time is also an art that very few have mastered. Even debt instruments, considered to be a safer option than stocks, can run into losses if the companies issuing the same become insolvent. Insolvency means the inability of the company to service its debt obligations. By issuing debt instruments, companies raise money from the public.

If you’ve invested in these instruments without any knowledge and encountered losses, wait till the time your investments bounce back fully or to a reasonable level. Afterward, switch your money to either mutual funds or unit-linked insurance plans (ULIPs) where fund managers control the investment portfolio. They read those complex market graphs and charts before choosing the right financial instruments to create wealth for you. However, checking the work portfolio of different fund managers and trusting the one who has performed consistently is paramount.

Getting Late to Investing

Delaying investments that can help you achieve financial freedom is one grave mistake you should not commit. An early start would let your money compound for a much longer time and help you earn enough to deal with the unrelenting inflation later. The late beginning would understandably not allow you to invest for long and thus shorten your corpus drastically, hindering you from maintaining a good lifestyle after retirement. Let’s consider an example to understand the same.

Example – Shashi and Rahul aged 30 earn a monthly salary of INR 60,000 each. While Shashi starts investing INR 10,000 monthly, Rahul wants to start investing 10 years later. Both assumingly would retire by the time they hit 60. So, the investment horizon for Shashi and Rahul will be 30 years and 20 years, respectively. If Rahul invests INR 10,000 monthly from his intended time, how far will he be left behind Shashi?

While Shashi will accumulate a corpus of INR 3.5 crore, Rahul will get around INR 1 crore. More than thrice the sum Shashi will accumulate. What’s more, after taxes, Rahul will find himself out of the ‘Crorepati’ list. Shashi’s corpus too will lower a bit after taxes, but he will continue to be on that list.

To be at par with Shashi, Rahul will need to invest more. But Shashi can also increase his investment amount later to surpass Rahul comfortably. So, the key lies in starting early as it gives you the flexibility to earn more.

Note – The earnings of both Shashi and Rahul are based on an assumed annual return rate of 12%.

Investments Not Attuned to Your Financial Goals

All your investments will come to no use if they are not attuned to your goals. If you want to build a retirement corpus for yourself, you cannot rely on pension plans alone. These plans mostly offer conservative returns which don’t allow you to deal with inflation later. Besides pension plans, you need to trust the money-raising potential of equities despite the risks involved in the same. All you need to do is choose the right equities and the right fund managers. The investment allocation strategies also need to change through your lifecycle stages.

So when you begin at say 30, have around 80-90% of your investment bucket in equities and the remaining in bank deposits and other fixed-income instruments. Once you reach 50, offload some 10-20% from equities and load the same into conservative instruments. A few years before retirement, you would come close to achieving the corpus you require to live your golden days. Withdraw a substantial chunk and keep your equity holdings to around 20-30% only till you retire. Following this smart portfolio allocation strategy will ensure you enough for retirement.

Have You Withdrawn Your Investments Seeing the Bearish Trend?

Weak market sentiments aided by adverse economic and political developments can pull your investments down. Furthermore upheavals are expected if such sentiments sustain. But that should not lead you to panic selling and miss out on laying ground to make sharp gains later. Often during market downturns, quality stocks come at a much lower price. Once the market recovers, such stocks would elevate at a much faster rate and raise your returns sharply. What matters more at such times is the stocks you have in your portfolio. If they are good having strong fundamentals, nothing to worry about then.

Same Investment Pace

Investing regularly holds the key to a successful investment journey; however, the pace of investment should increase with time. You may have started investing INR 10,000 monthly, for example. But not raising the investment amount with time only hinders your flexibility should the broader market remain bearish for long. A continual increase in investments would only help you recover the lost ground faster once the market starts surging. The increase in the yearly remuneration only allows you to invest more. Make good use of the same to reap rewards.

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