Key pitfalls of investment that every investor must avoid.
“The stock market is a device for transferring money from the impatient to the patient.”
Your investment portfolio should consist of those products that match your needs and works towards your financial goals. Investment is a must these days. Because investments allow an individual to create a corpus, but they also enable us to earn a good return on the savings and can even generate regular income if done right. If you are a first-time investor or have been in the investment game for a while, you should consider these points and that will surely help you in your investment tactics and will also maximize your long term returns.
Mentioned below are the few factors that can help you find the right type of investment:
1. Understanding your financial product
There are a variety of financial products and its essential that we should consider risk appetite, tenure, and investment nature before investing. It’s important to understand these products before adding them to the portfolio. Making sure of the complexity of the products will ensure that you meet your financial plan, and also proves high profitability. It would help if you analyzed these factors before investing, and those which suit your age, financial condition, risk profile, and goals
2. Lacking in financial literacy
Many people often get confused while they are investing, and the reason behind this is that they don’t understand market conditions. One should intensely follow the market carefully and should also identify trends and patterns of investment. The major problem faced by the investor is to lack basic financial literacy, and they do not know the effects of critical economic factors of investment. Most people have less knowledge of risk, interest, and inflation. The simple mantra is to seek help if you lack sufficient knowledge. You can either Google it or get financial advice or even reach out to your fund manager if you have invested earlier.
3. Risk tolerance
According to financial expert, there is a direct correlation between the risk associated with an investment and the returns provided. Generally, the higher the risk, the higher the returns. However, different investors have different risk-taking ability, according to their financial condition and preference. It is essential to know your risk-taking ability. High-risk investments include equity investments, but one cannot assure the returns. Hence it is recommended to have a mix of both equity and debt in your investments.
One of the most important factors to consider while investing is your age. Because when it comes to investing, your age factor plays a significant role. To invest while you are young is an advantage because you have disposable income, and you can wait for a more extended period for an investment to bear fruit. However, as you grow old, you have the responsibility of the family, children’s education fees, marriage, and many more. So you will have lesser time for your investment to provide returns. So your ideal investment instrument changes according to your age.
5. Long term perspectives
Remember one thing we are investors and not traders. Investments should be made in such a way that they help you out in the long run, and your investment should also beat inflation rates. You need to be mentally prepared and not expect results to appear instantly. The best way to reap benefits from your investments is to stay invested for an extended period. Say supposing your investment tenure is six years then you must not be tempted to withdraw your returns before 4.5 – 5 years at least. Remember, the market fluctuates, and this rise and fall of prices tend to average out given a long enough period.
Investment cannot be mastered in a single day. Remember one thing before investing and that is we are investors not traders. The fact is returned cannot be avoided in a single day and a consistent and cautious approach is the best way to guarantee returns in the long run.
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