Top financial mistakes that can derail your investment journey

Jon Levy | Posted on May 18, 2022 |

After saving money, you need to invest properly to cover risks, save taxes and generate profitable returns. If you do not invest, the money saved will lose its purchasing power over time. On the other hand, a planned investment will help you meet your financial goals with relative ease. For this, you must avoid investing mistakes.

Wrong with investing

The following are some mistakes that can derail your investment journey:

There is no diversity in the portfolio

For example, putting all the eggs in the same basket can ruin the egg, and all investments in a single instrument – especially equity – will lose all money. So, to reduce the risk of losing money, you need to diversify by investing in multiple materials. Variety will ensure that you do not lose all your money, even if one instrument fails to perform.

Extremely conservative approach

It is said that the biggest risk is not taking any risk. In order not to take any risk, if you put all your money in fixed-income instruments, you will gradually lose the purchasing power of the invested capital. This is because interest earned on fixed income instruments – such as fixed deposits (FDs), recurring deposits (RDs), etc., is generally taxable and such instruments can rarely lose the rate of inflation. Without any indexing facility, income after tax deduction lags behind the rate of inflation, resulting in a gradual decline in the purchasing power of capital invested over time.

Thus, investing in fixed income instruments does not raise capital – as in equities during market volatility – the double-edged sword of taxes and inflation impoverishes conservative investors.

No idea about compound energy

Even if an instrument pays a higher compounding interest than a instrument that pays higher general interest, over a period of time, the instrument that provides a compounded return will offer a much larger profit. The profit margin between the instruments will increase exponentially with each passing year.

Albert Einstein, the greatest scientist, once said, “Cyclical interest is the eighth wonder of the world. He who understands, earns; He who does not pay, pays. “

So, do not underestimate the power of compounding and do not invest in instruments that provide a compounded return.

Taking unnecessary risks

The best investment plan is one that helps you reach your financial goals with minimal risk. So, if you can reach your financial goals with less risk, there is no point in risking your money to get a higher return.

Looking forward to a quick return

One has to plan his investment to meet the long term goal. If the objective is achieved quickly, the chances of losing money are high. In order to get a quick return from equity, people usually make the mistake of investing in a higher market – when existing investors have already made a profit – and see their investment in a negative state and exit the lower market.

However, if an investor enters the market with a long-term outlook, he can ignore the short-term volatility and stay in the investment to get a higher long-term return.

Don’t seek professional help

To get a long-term investment plan to meet your financial goals, you need to have a comprehensive financial plan. It is best to seek the help of a professional financial advisor to create a financial plan that will help you to ensure that you stay in the investment to meet your goals during market volatility.

Failing to invest in learning

In addition to professional help, you need to invest your time and money in learning investment strategies. Learning will give you more confidence and help you stay on your investment path.