Everyone invests with a financial goal to achieve. The goal can be a short or long term, and it can be as big as purchasing a housing property or going on an exotic vacation. Be it anything, investing regularly is the best route you can take to realise it. You have to remain financially disciplined if you are to achieve your goal sooner.
Here are the most common mistakes that you must avoid to preserve your portfolio from falling apart:
1) Investing blindly
When you are picking an investment option, you have to ensure that you are choosing the one that is in line with your requirements and risk profile. You will have to analyse and compare the various available options and then select the most suitable one for you. An investment vehicle which is suiting your friend may not necessarily suit you.
More than anything else, you have to invest in only those options whose risk profile is in sync with yours. For instance, if you are not ready to take any risk, and you invest in an equity-linked scheme, then you are not investing correctly. Understanding the risk level of an investment option is very important. Investing blindly will prove to be detrimental.
2) Going with the flow
Going with the flow is fine until it’s not with your investments. You don’t have to follow what others are doing. You have to keep one thing in mind, that is investment style varies across individuals, and you don’t have to invest where your peers do. Your focus must be on choosing the right investment option and stick with it until your goal is achieved.
3) Making impulsive decisions
Your focus should always be on achieving your goals. Some changes in the markets should not influence your investment-related decisions as the markets never remain the same. Change is the only constant when it comes to markets. You should not redeem your investments just because the markets have fallen.
Also Read: Systematic Investment Plans: All You Need to Know About Them!
You need to understand that markets go through both up and down cycles. To benefit from your equity-linked investments, you have to stay invested over a long period as this is the only way to mitigate market volatility.
4) Putting all your eggs in one basket
This is one of the biggest blunders that you can make when it comes to investments. Investing in only one instrument is never a good idea. That is the last thing you would want. You will have to diversify your portfolio by including a variety of investment options that are in line with your profile.
If one of the investments fail to perform as expected, then others in the portfolio would make up for it. For instance, if you are a risk-averse investor, then you may consider investing across fixed deposits, government savings schemes such as PPF and NSC, gold, and so on.
Likewise, if you are interested in trading equities, then your portfolio should consist of stocks of companies across all sectors. If one area fails to meet the expectations, then stocks of other sectors could make up for it. If you don’t diversify your portfolio and invest heavily in one sector, then you don’t give yourself a chance to cover up for the possible losses.
Staying away from making mistakes is very important. It’s always better to be safe than sorry. Having the right approach toward managing your portfolio is critical. Let your friends and relatives invest wherever they want, and you don’t have to follow their style of investment. If you are finding it a difficult task to select the right instruments and manage the same, then you may approach a financial advisor. It’s okay to pay for advice from a professional rather than burning your hands by listening to what Tom, Dick and Harry said.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
