Numerous investors in the stock market when lured by greed or surrounded by complexities end up making costly mistakes! There are several questions that you might ask yourself, and surely introspect about what you actually expect from your investments! It is essential to be cautious! Don't ever mistake to invest in the wrong funds without undergoing a proper research.
Know first, whether you are tempted to invest in the available balanced funds for the sake of regular dividend payouts? Or are you just considering to hike up your investment in the mid or small cap funds? Willing to start with a new SIP, hoping to capture high returns? Or the low returns being served by debt funds, have compelling you to shift towards high yielding credit opportunities?
If any of the questions added above, makes you nod your head in "Yes" then you definitely require to spend more time, so as to strengthen up your investment portfolio! In fact right after we have faced the crucial demonetisation last year, and have currently witnessed the budget, it becomes quite more essential to focus upon your existing investment habits, and change them accordingly. Here is a collaboration of top 3 mistakes that beginners and even the experienced investors sometime make and fall under the pit of trouble!
Reaction towards the short term returns
Right when new financial year is all set to bang on and the previous one is one the verge of end, investors tends to sell those funds which featured, worst 1 year returns. They simultaneously plan to buy the one which had greater returns over time. However, it is just a game of stock market! It is something that might let you feel better, and explain you about the concept of how your new fund being run by a smart manager tends to be far ahead of the curve, whereas your old one has lost its plot!
However, you will never get to identify the clear cut idea that you are selling at low and again buying at high! Nor you will make yourself believe that yes, you have made a mistake and your short term returns have always been just a noise. Investors, who are better off with this trend of buying the funds with lagging short term performances, than the ones with top-quartile returns, will definitely destroy their investment portfolio.
Not understanding and dealing with the risks
Having a narrow focus on their current returns can make the investors go blind on the risks. if your fund has been invested for long and has a great track record, then you can easily analyse the annual returns, and have a clear cut idea of how the risk have been threatening. Generally, it is witnessed that the stock market seems to lose around 30% in a bad year. However, when we consider the risk and returns of 3 consecutive bad years, it may turn up to be nearly 60%.
This is a reasonable assumption which nearly every stock fund experiences, and treats your investment badly. Thus, smart investors basically know that the stocks are meant to last within 10-20 years of time or even for longer horizons. If you have the perfect idea about risk, you will have a better opportunity of earning healthy and risk free returns.
Failing to diversify the investments
in the world of investments, diversification plays a key role. It's a definite thing that you would never want to keep all your vulnerable stuff in one basket. Just like that, here too, you must start to invest in various stocks online, while doing so, ensure that you diversify the funds accordingly and protect your assets in the whole procedure. There was this year of 2008, when the investors got highly punished by the bear market, whereas the energy fared best.
Thus, there are some markets where growth stocks get crushed out, in others the mid and small caps suffer. Each fund has its down-period which appears to be different. so, you should stay attentive and active enough to smartly diversify your investments among market caps, debt and equity, while gaining some benefits of the foreign exposure too.
So, don't get into instant stress by listening to your friend's advice's, watching the business TV or tracking the stock market online. These actions might seem helpful in the short duration, but are never fruitful in the long run. These are all just predictions, and you perfectly know that, stock market can prove these predictions wrong within fraction of seconds!