It is important to have a sound investment plan in place and ensure that we do not make the following mistakes while investing our hard-earned money:
1. Lack of financial Plan and Budget 2. Making Investments without really understanding them 3. No Diversification of Investments 4. The family is unaware of the financial state of affairs 5. Holding on to non-performing investments
We all know that making sound investments as per our goals is important. Here we list out 5 deadly investment mistakes that one should stay far away from.
- Lack of Financial Plan and Budget: Some of us make random investments with no sound plan in mind. We buy some stocks on the basis of some ‘friendly tips’, make some last minute tax investments on 31st March without really understanding what those investments are and whether they are suited to our financial profile. We should make a financial plan listing out goals, income, expenses, dependents etc. on the basis of our risk profile and then execute the financial plan. It is also important to have a budget in place and stick to it. Otherwise, we could spend beyond our means and will not have money for important things.
- Making Investments without really understanding them: Of course, you do not have to be an investment whiz, but you should be aware of the instruments, assets or businesses that you are investing in. Understand the returns expectation or how the business is organized. If you are not aware, you should make an effort to learn more or avoid investing in it
- No Diversification of Investments: You need to make investments in different kinds of assets depending on your returns expectation and financial goals. If you invest only in 1 or 2 types of assets, and there is a downtrend in that asset market, your financial plan will backfire.
- Family is unaware of the financial state of affairs: More than one person in the family should know all financial details like insurance claim and medical claim details. Physical assets like investment documents, gold, bond certificates should be kept safe and secure. Banking and Demat account passwords should be kept secure but there should be a way for someone trustworthy to be able to access them if required.
- Holding on to non-performing investments: Our investment may not perform as per expectation. It could also happen that the asset class was on a bull run for a temporary period and then is priced by the market to its real value. Many times we hold on to such loss investments, thinking it will bounce back in the long run. It is better to sell the non-performing investments and use that money to invest in some better quality asset.
Investment of our hard earned money is critical for our as well as our family’s future and we should ensure that our investments work just as hard as us. Therefore we should avoid costly investment mistakes.