There are only two paths to minimize investing mistakes. Expensive path wherein you can make those mistakes yourself call it experience. The second one is the smart path whereby you can learn from the mistakes made by others.
This video is for the smarter ones as we examine the 11 most common mistakes made by everyday investors and how you can prevent them
Topics Covered:
00:00 - Introduction
00:42 - USE MONEY THAT YOU CANNOT AFFORD TO RISK
01:56 - INVESTING WITHOUT UNDERSTANDING
03:05 - TRYING TO TIME THE MARKET
04:25 - IGNORING ASSET ALLOCATION
05:33 - DI“WORSE”FYING INSTEAD OF DIVERSIFYING
06:38 - LACK OF PATIENCE
07:51 - CONFUSING HISTORICAL RETURNS WITH FUTURE EXPECTATIONS
09:11 - BRAINS v BULLS
10:36 - EXCESSIVE TRUST IN “EXPERTS”
11:42 - EXCESSIVELY FOCUS ON TAXES
1: USE MONEY THAT YOU CANNOT AFFORD TO RISK
The money for short-term goals and criticalities like paying off a loan, a child’s school fees or simply setting up an emergency fund should not be invested in the equity markets. But perhaps a more lethal financial crime would be to invest money that don’t own. For instance, when you takes a personal loan that is money that you don’t own afterall a loan is not an asset for you.
2: INVESTING WITHOUT UNDERSTANDING
Fund managers invest they put in hours and hours of research and often reject dozens of companies for every one they invest in. This sort of due diligence is the bare minimum expected from any investor to ensure your investments are worthwhile and that they stand a chance to make a healthy profit for youThe more due diligence you perform .. the better your investing results will become. But if you cannot dedicate this time, then you are better off investing in professionally managed funds or a system based index funds which are better equipped than investing oneself in an ill-prepared and ad hoc manner
3: TRYING TO TIME THE MARKET
Majority of investors in India and around the world continue to chase this imaginary line assuming they know when the market peaks and bottoms out. Our studies here at ETMONEY show that more than timing the market what has a larger bearing on your investing wealth is the time you stay in the market.
4: IGNORING ASSET ALLOCATION
The asset allocation has a major bearing on portfolio returns and yet, this simple task is blatantly ignored by most investors. Studies have shown that a balanced investor who puts part of his money in debt, gold and equities .. can make as much returns as someone who does not asset allocation but puts 100% of his money in a single asset class. Ofcourse, the kicker here was that this balanced achieved the same returns as a Nifty50 investor but consumed a lot less portfolio risk in the process
5: DI“WORSE”FYING INSTEAD OF DIVERSIFYING
Diversification is one of the foundations of responsible investing .. and helps investors reduce portfolio risk. Unfortunately, many investors end up diworsifying their investments rather than diversifying it. Diversification happens when you add an asset to your portfolio .. but more importantly, this asset you add should have a different risk profile to what the portfolio currently has
6: LACK OF PATIENCE
Impatience is often termed as the most costly emotion within investing and comes from unrealistic timelines. Investors expect the shares they recently bought to move in the expected direction almost immediately which almost never happens.
7: CONFUSING HISTORICAL RETURNS WITH FUTURE EXPECTATIONS
A common practice amongst everyday investors is to chase historical performance by investing in mutual funds which have done well in the past 1 or 2 years. The past returns is no barometer for future performance expectations and it would be in an investor’s interest to put very low weightage to that piece of history.
8: BRAINS v BULLS
A rising tide lifts all boats. In that context, a bull market always pushes up some undeserving stocks and that’s purely because these lucky stocks happened to be at the right place and right time.
9: EXCESSIVE TRUST IN “EXPERTS”
Everybody has a conflict of interest with your wealth except you. If you are exposed to some expert information stay curious but also stay skeptical enough so that you yourself research everything you receive.
10: EXCESSIVELY FOCUS ON TAXES
A mistake that’s often made, is to be very inflexible about the implication of taxes. Consider tax as one of many factors in analysing a transaction and not the only factor.
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30 июл 2024
