Investing is a process driven approach, and is far more sophisticated. While invest, you should ideally ascertain your investment objective, and thereafter invest in appropriate investment avenues which help you attain the set objectives. Although this may sound a little difficult, it can be achieved by avoiding some very common investment mistakes. While there are galore of mistakes which investors do (while investing) and the list is endless; we have highlighted below the five most common mistakes and guided what investors' should actually do.
Investing without a plan: Well, the first and most critical step while investing as mentioned above, is to outline your investment objectives. Setting an investment objective simply means ascertaining why you would like to invest, along with the financial goal which you have in mind . And mind you, segregating your financial goals into short-term, medium-term and long-term, will help you to invest in a much systematic way. For instance, planning for vacation is short-term, planning to buy property is medium to long-term, planning for retirement is long-term.
But through experience we can say, very often investors stumble at the starting point while defining investment objectives; this in turn gets their financial plan in a tizzy.
Not diversifying well enough: Diversification is one of the basic tenets of investing. At PersonalFN, we regularly meet clients who have invested a large portion of their hard-earned money in a single asset like real estate for instance, or equity. While such investors may do well during a run-up of a respective asset class, the risk also gets elevated during the downturn of the respective asset class.
Thus this highlights the point of how vital it is to put your eggs in different asset classes (such as equity, debt, gold, and real estate). Moreover, diversification is also important within an asset class. So, say while you would like to invest in a respective companies stock (in the equity asset class) for all the robust fundamentals it holds, you should be diversifying your portfolio across stocks, thereby having a better sectoral diversification too.
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