Investors appear to assume that investing in the stock market or any other financial markets is all a matter of luck. The simple rule is to buy the right stock at the right time that will surely give investors a fruitful returns. Though you definitely can get fortunate in the stock market by actively investing and not simply leaving your future hopes to probability. If you plan your investing goals, you may reduce the risk whereas maximizing the profits. Beneath discover five of the commonest investing errors you may make.
Investing without knowledge and research
Since you have some money in the bank or a wallet brimming with cash doesn’t imply that you should start purchasing stocks or mutual funds or tracking down alternate ways of financial planning for your well deserved reserves.
- You should first have a sufficient savings in your bank that can help you through any financial crisis before you start financial planning and investing in markets. Be well prepared for any money problems you come across in your day to day routine. Post-COVID, people should have at least six months of living expenses invested in Fixed Deposits or in Liquid Funds which can be easily withdrawn in case of emergency. Post-Pandemic, few people have also quit their jobs as they started giving more importance to their personal life. Such type people should have about a year’s worth of living expenses, so that they don’t find themselves in a situation that they are not able to live their basic life.
- You should keep in mind that if you already have a debt like personal loan or housing loan or a car loan, then you should first try to reduce it or probably pay it off. The amount of interest you’re paying against these debts after paying it off, can also be invested in markets which can generate better returns in long run.
So before you start you’re financial planning and investing in shares, mutual funds, ETF’s or any other financial instruments, have the investible surplus ready. Keep investing without missing any buying opportunity in a volatile markets and grow your wealth.
Investing without a Goal
If you have the investible surplus and after taking tips from your relatives and friends, you’ve started investing in mutual funds without a goal. This way you’ll never come to know when if you’ve succeeded generating profits in markets. Goal gives you guidance and let you know when you’ve made progress in the effective money management approaches you have chosen. The following is the list of common goals shared among most investors:
- Accumulating money for retirement
- Save and invest for Kids Education or Higher Education
- Save and invest for your Child’s Marriage
- Building a significant up front payment for Dream House
- Save for a domestic or international vacation
- Save and invest to buy a Car or a gift for your loved ones.
- Strong Diversified portfolio which is not much affected by volatility of markets and grow in long run
Don’t trust those ‘Hot Tips’
Just imagine, you’re at cafeteria with one of your colleague having a cup of coffee. Abruptly your co-worker murmurs in your ears a name of a stock that is going to go up and if you buy now, you’ll be in huge profits within few days. This is nothing other than a ‘Hot Tip’ which is circulated in stock market. Don’t just blindly believe and invest in it. Most of such tips are kind of campaign to attract retail investors to invest in a particular stock. The moment you invest, the share price of that stock goes down very quickly incurring huge losses instead of profits. It is highly advisable to do some research before investing in stock market.
- Think about the Industry : For instance, if petrol prices are going up then automobile industry stocks may not be the best interest in near term.
- Think about the Company : Does it have a background of consistent Year-over-year growth or has unstable earnings or sales.
- Think about the Stock Price : Does it perform well for a long period of time or is it more often in the downward trend?
Portfolio not Diversified
Stock Market is unpredictable and investing in shares, mutual funds, ETF’s or any other financial instruments, can anytime turn upside down. The moment you might feel any of your goal has achieved its target, one of the stock in your portfolio might get de-listed from stock exchange. It is very important to invest in shares of different sectors, industry or in mutual funds or any other financial instruments which could lower the risk of losses. The more you diversify your investments, there will be less chances of loss and the less you diversify your investments, the chances of loss increases.
It it advisable to invest in shares, mutual funds and bonds and have at least five investments in each of them. This simply means, choose five shares belongs to five different sector/industry and invest similarly in mutual funds as well as bonds.
Selling too early or too late
People invest in stock market to grow their wealth or to save for any of the goal they wish to achieve in future. Everyday there is some or the other news about the stock or mutual fund or a bond in which you’ve invested. Suppose, if the stock price is going down and fundamentals are good, then you should buy more at lower price. If people are consistently buying a stock and its price is creating a new high everyday, you might want to sell and book profits immediately as its price may go down sooner or later. Carefully analyse the situation, take a deep breath and act accordingly.