To err is human but to repeat those same mistakes is being a pudding head. And particularly when one has embarked on the path to realise his or her financial goals, an error can invite havoc. So, you may consider yourself a great beginner in the investment market if you do not commit these mistakes.
Don't let risks intimidate you
Investments are never risk-proof and at the same time, one who has the tenacity to convert risks into opportunities can only realise his financial goals, optimally. Early investors should explore risk in investments than resorting to conservative portfolios because it is always wiser to begin early and eventually cover up for losses (if any) by generating higher income in future.
Don't mistake insurance for investment
Many people mistake insurance for investment. As a result, they misallocate their savings in an insurance fund over investment. One must know that both the conditions of over- or under-insurance can negatively impact personal finance. To avoid this, one must seek advice from a finance professional who can gauge if you are adequately insured and not over-investing.
Don't buy toxic financial products
Maximum financial mistakes are committed during tax season because most of us tend to buy tax saving products which are toxic. Additionally, to learn about investments, many new investors burn their pockets by buying financial products which are not suitable to them. These mistakes can be avoided by identifying the objectives behind investing in any particular financial product.
Don’t under/over diversify portfolio
Diversification of portfolio helps mitigate market risks. But having direct exposure towards equities or multiple unexampled investments may not fulfil one’s investment objectives. Besides that, keeping a track of returns on an over diversified portfolio may become a challenge for early investors. So, one must always carefully venture into diversifying one’s portfolio, and do so in consultation with a personal financial advisor.
Don’t seek help from kith and kin
Beginners in investment prefer consulting with kith and kin to certified financial advisors, mostly fearing wrong advice or lack of faith. But one should know that only an industry expert can give one pragmatic advice on making the right investment choices. For example, friend or family members will usually advise on investing in fixed deposits or real estate assets which are illiquid in nature and not flexible. To the contrary, an industry expert will focus on suggesting more flexible avenues with high ROI (returns of investment).
Building a portfolio linked to one’s financial goals is not an easy bake; it takes years of exposure and knowledge to be investment savvy. The way we own our profits/gains, we refuse to own our losses with similar intensity. And since this is the essence of our relationship with finances, should we not be discerning enough with our investments?
(The writer is the founder of ArthaYantra.com)
