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Common mistakes people make while investing


Starting late           

The earlier you start, the better off you are. The advantages of starting early have been discussed in an earlier article last week. ( See “importance of starting early” Dt. 19th March 2012)

Starting your investments when you have substantial outstanding loans to pay

We tend to hold on to home loans, educational loans etc. because of the tax rebates they offer, but the high interest charged on these more nullify the effect of these rebates . It is advisable to keep part paying your loans whenever you have any surplus money. I have also come across people who regularly invest their income surplus, yet never pay their credit card dues in full and always have a revolving credit.

Thinking “Short Term”

Most people are reluctant to lock-in their savings for a long term and prefer lesser yielding short term investment avenues where they have the flexibility of withdrawing their capital at will.

Stagger your investments- money which you are likely to require in the near future should go in short term fixed income or debt schemes. The rest of it which you probably do not require for the next 3-5 years or more should be invested in riskier avenues where the longer term mitigates the risk and enhances the returns.

Playing it too safe

Many of us are risk averse and are happy keeping all our money invested in Fixed Income and Govt. bonds where we are reassured that our principal is safe , even though the rate of return is not very attractive. The consequence- after accounting for the high inflation and income taxes, the real rate of return is actually close to NIL or even negative!!

Depending upon what your age is, take exposure to the stock markets-either directly or through the mutual fund route. The lesser your age, higher the exposure should be, since you have the time to face all the market fluctuations and get rewarded over the long term.

Not investing anywhere

There is a small  segment of people who are happy letting their surpluses lying in savings or linked fixed deposits and do not believe in complicating their life by first investing and then tracking their investments. After all, why take unnecessary risks when the returns are not even guaranteed??

A piece of advice for them…

Yes, there is no guarantee that the investments will do as well as expected. But one thing is guaranteed. If you choose to do NOTHING, you are not going to achieve your financial goals for sure!

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