The 5 common mistakes investors make are
- Choose your Adviser wisely
- Don’t churn your portfolio quite often
- Don’t have a market bias
- Know the difference between performance and financial information
- Stick to your plan
The major reason for an investor not able to achieve his goals finds the root of this problem. How much time did you spend to evaluate your adviser? While some people have avoided taking an adviser thinking that they are a smart investor and don’t need anyone
The biggest regret for many investors (Please refer earlier post) is they don’t know why they had a shortfall or realize that the goal is a distant dream only to blame their destiny or bad advice for known friends who turn advisers for them. Just like you need to sharpen your axes before cutting to get the best output, you need to evaluate and check the adviser’s experience and ability to handle your investments.
In pursuit of maximizing returns sometimes you become over-reactive to every change and end up churning portfolio quite often thinking we avoided stop losses. In contrast, what happens is that investors book out of schemes or funds but don’t enter back on time and a lifetime of investment opportunity is lost as they remain liquid for a longer time. Your adviser can help you if something turns bad and in such cases only you need to shuffle your portfolio.
You don’t form a view on the market to decide your investment. Markets are expected to go down or up and basis that you decide to invest can backfire since the outcome can keep you on hold for longer than expected time. This can mean a missed opportunity. If you decide to invest an save for the long-term, then timing does not matter. Just start and stay ahead
You could be trying to interpret performance and financial information wrongly. As we look at stock or bad performance of a fund, is it seasonal or is it a temporary setback for the sector or a corporate governance issue. If stocks in particular sectors are down it could be a cyclical issue.
Corporate Governance: when the auditors or senior management resign due to a difference of opinion with promoters it could be a cause of concern. Also if the financial performance of a company is going down the hill and if funds are diverted to some other companies or projects elsewhere then it can be a larger problem. One should hold back and should react only if there is financial fraud, misappropriation of funds, etc
The fifth mistake
Investors tend to lose interest and don’t continue their investment. You need to complete the full journey to reach your objective. You may check the importance of staying the course in the previous article written by us
So don’t break the rules unless it is very critical. Investment is a marathon and if you stay to complete the course you will be successful.