Whenever we hear the term “Investment”, we are hardwired to have an open ear with a cautious mindset. This is mainly because most of us consider investment an easy medium to earn money. The most common misconception Little do we realise that investment, just any other reward, requires a certain level of commitment and hard work.
One of the major misconceptions among people regarding investing is that we feel if we bring in more money into the investment pool, we expect more returns. We need to understand that the return on investment is not entirely based on quantity. People who earn profits through investment are the ones who enter the market with a clear-cut investment strategy. On a general level, several misconceptions go with people not being able to book profitable investments. Through this blog, let’s explore the common financial mistakes that go around with investments.
Lack of Knowledge
This first and foremost is the absence of due diligence during the research process. Most of the investors fail to research thoroughly about companies, industries and the market trend. All these should be done before investing and if not done properly, it could lead to investing in overvalued assets, more risk factors and you might also become a victim of online scams.
One of the most common mistakes with investors is thinking that they can time the market perfectly and take away huge profits. The effort to buy low and sell high has more often than not led to low returns and investment mistakes. Due to the market uncertainty, attempting to predict the market will be inherently much more difficult. Trying to time the market in such a way can lead to missed investment opportunities and the overall risk factor would be very high.
Emotional Traps
One of the common human traits that will affect investment decisions is overconfidence. When you believe you have superior knowledge about the market and go for excessive investment, you are more likely to end up with a below-par return on your investment. Frequent trading without sound knowledge will lead to excessive trading costs and increased risk due to biased investment knowledge.
The influence of emotions plays a vital part in financial mistakes. Emotions will more often than not lead to irrational choices of investment. Greed and fear are the two most common emotions that will lead to bad investment decisions. When you sell based on fear and buy based on greed, you are adopting a herd mentality which will leave you with bad investment choices.
Neglectful Habits
The ABCs of investment is diversification, wherein you will have your investments distributed across different sectors. If your assets are not diversified, you are potentially risking all your investment in a volatile market. Diversification is the anchor that holds your investment ship from drowning. If you have a concentrated investment portfolio, then your portfolio is more prone towards market fluctuations.
Stock investment is not like a rock under the well bottom which will never move irrespective of time. Think of it more like a boat trying to cross the ocean with the help of wind. The boat can reach its destination only when you ride the tides properly. Similarly, continuous monitoring is required for your portfolio to remain aligned with your long-term financial goals. Failing to do so would result in increased risks and missed opportunities.
Conclusion
If you are an investor with a long-term goal on the horizon, then avoiding common investment mistakes is essential. Only a disciplined approach will help you maximise your investments and make rational decisions. A well-informed decision will heap hefty rewards in the line of investment on assets. If you are unsure about your expertise, then it is advisable to approach an investment expert for guidance. Professional guidance based on your individual needs is necessary for the long run of your investment journey.
