The Investment Mistakes You Need to Avoid

The Investment Mistakes You Need to Avoid
September 29, 2017 K Compare
The Investment Mistakes You Need to Avoid-Karlocompare

Predicting your financial future is always obscure, hundreds of books have been written on how to manage personal finances but nothing can be said with certainty. Investing in stocks, metal and gold can be dicey and their long term future is hard to predict. There are however few government floated investment opportunities that are guaranteed by the state but their rate of return is low.

Though the future of an investment and how would they react in the long term is hard to envisage but a person can always avoid few mistakes. Some of the areas to look out are outlined for you. Learn from these mistakes that a lot of people have made and which have not yielded good results:

Realistic Expectations

Making choices about where to invest is a professional’s job – their organization’s research and expertise is the best way investments can be soundly executed. A person with no investment background can only watch highlights of the Business Hour on TV or at the most read newspapers and visit websites on the same subject. But this is not enough, what is needed is an in-depth study financial instruments. This is why several banks and financial institutions now offer “Fund Managers” with numerous investment options. These institutions have dedicated research departments that conduct detailed analysis on a regular basis that augment the fund manager’s expertise.

Now, this does not mean you solely rely on their advice. Many a times such investment advisers pledge hefty returns to secure clientele. The investor must listen to their advice because that’s why you went to them in the first place, but you should never fall for unrealistic promises. An investor must take it upon him or herself to investigate a little and see the bank’s history, available portfolio and the market trend. Investor must not get carried away in anticipation for higher returns but keep expectation in check.

Why Invest

The purpose of investment must be clear, is it for a short term return or a long term reward. Are you looking for an investment type that gives monthly profit with a low return or a medium term to own a property in next few years? Or, perhaps you have your retirement plan in mind. It is therefore necessary to have a clear goal and work towards achieving it. Several people start investing for the sake of an investment, this where the problem starts and they get disheartened.

Egg and basket

Over the years, wise men have advised to not put all your eggs in one basket, this also stands true for investment. The investor must spread out his hard earned money in more than one portfolio. In other words, diversification of funds is critical. If at any given point, the stock market is slow, investment in currency may pay off. Likewise, if bonds are not doing well, gold might. Stock markets particularly have tendency to jump and drop many times during week or months. In Pakistan, this can happen in a single day thus driving off many potential investors away or kill their enthusiasm. Diversifying investment portfolio is a fall back cushion in such a scenario. This will keep the interest alive and investor will not panic and start selling at a loss.

Intuitive behaviour

There is nothing more dangerous than a spontaneous decision to buy or sell. When the market has a bullish trend, and is expected to increase, investors start buying securities at higher prices. Similarly, when market gets bearish, these same investors get panicky and sell their stocks at lower prices thus depriving them of any returns. Buying high or selling low both are wrong decisions and taken in haste. If the stock is bought at a higher price the investor must remain calm and hold on to the investment. There will be upsurge soon and there will be an opportunity to sell at that point. Otherwise, the loss is eminent but can be changed into a profit with some patience.

Activity abundance

Numerous people, who are relatively new in the field, perform too many transactions to get that taste and earn quick money. Let’s get one thing clear, there’s no quick money anywhere. If that would have been the case, there are people who are much smarter and have the spending power to play with. If by any chance an investor has made some money, the returns are far too low, which means you are exposing your capital to tremendous risk. Every time a transaction is performed, the investor has to pay the commissions and fees to the brokerage house thus eating up a fair chunk of the money made.

Reassessing

Though your fund manager or the brokerage house regularly reviews your investments, but it is also your duty to regularly review and reassess your investment portfolio. If an investment in a certain area remains dormant, you must ask and investigate the reasons. Ask your advisors what can be done. May be you want to let go of that investment or some portion of it and have it reinvested elsewhere or perhaps explore other options to manage your portfolio’s returns better.

Reaction on media

Media has the tendency to over or downplay the actual events because that’s their business; to keep you glued to the screen. Avoid knee jerk reaction, it is absolutely unnecessary to walk early in the morning to yours or fund managers office and buy or sell the stock because of the media hype last night. Investigate and consult your investment advisers, wait a few days and then take a conscientious decision.

Market genius

It is observed that after having spent few months and striking a few good deals, people start considering themselves a market genius and become a know it all. This is financial suicide. Such people perform too many transactions and one wrong decision may cause bankruptcy.

Take it easy, spend time and consult people who are in the market before making new investments. No one is perfect; we will make mistakes but must learn from our experiences. Knowledge is the key to succeed in this area. Sound investments can make or break a person. The future of the entire family depends on what and how you take a financial decision and try to avoid as many mistakes as you can in the process.

Check our comparison guides to evaluate if you are planning to obtain a loan to start with an investment strategy. You can always use insurance as part of your investment plan as well.

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