There seems to be a list of lists as far as investment mistakes or sins are concerned…this is my list…
- Not having a Goal while choosing products: Well qualified people come and just ask ‘I am investing in xyz fund is it a good fund’?..There maybe NOTHING to say whether it is a good fund or a bad fund – important thing is do you know why you are investing. I have well qualified people saying “I am investing for long term wealth creation…and in 2 years saying ‘I have to invest more in my dispensary, I have to buy a car….” some reason like this. Sounds so silly.
- Basing your investment on ‘Risk Tolerance’ without understanding what is Fear and Panic: You will not buy a shirt, pant or shoe on somebody else’s size, right? So how can you invest based on somebody else’s Risk Tolerance? So sit and see how much is your risk tolerance, understand it properly, and then invest.
- Making too many short term moves with your long term money: A long term investment is not a sigma of short term trading strategies. I see many traders thinking that the long term investment strategy = many short term trading strategies. Wrong. Completely wrong. You need to have a LT investment and a ST trading strategies.
- Very Concentrated portfolios: Most people have very concentrated portfolios – especially those people who have ESOP. It is common to meet people with a house (in which they live) worth a couple of crores – or more. Apart from this they have say 80% of their portfolio in ONE SHARE – being their espo. So this person with Rs. 3 crores net worth may end up having Rs. 2.5 crores in ESOP…and any plan asking them to sell a few shares is seen as treason!!
- Not having a clue about most of the investments! – this is so so impossible to believe, is it not? I found a person who had bought ULIPs thinking it was insurance cover…’Sum assured’ for him meant..if he paid Rs. 10,00o per annum as premium for 3 years…and then did nothing…he will still get Rs. 300,000 after 10 years! Why should such guys buy a ULIP? Learn about investing before you invest not AFTER. Price of financial education is too high if you do it through investments.
- Not saving enough: People living far beyond their means – this takes some explaining – only after you pay for ALL your serious goals – children’s education, parental care, medical and term insurance, retirement plan contribution – what is left BELONGS to you. If you spend ‘reasonably’ it may still be FAR BEYOND YOUR MEANS – and you may not be able to sustain this standard of living for the rest of your life. http://www.subramoney.com/2013/12/pay-yourself-first-means-what/
- Not knowing the difference between Saving and Investing: Filling up one’s portfolio full of saving products – ppf, bank fd, nsc, nps, own pf……and not knowing the impact of inflation. This is NOT INVESTING at all. Worst thing is that the person doing all this thinks ‘he is investing’.
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