5 Common Mistakes to Avoid While Investing

There is an age-old saying that tells us “ it is only human to err”. This is undoubtedly true!. However, it is only wise to learn from our mistakes so that we could avoid them in the future. There are many mistakes that we as investors make in our Investment journey. And being aware of these is the first step towards making wise investment decisions.

Here are the top 5 investment mistakes every investor should be wary of.

1. Not having clear Investment goals

The adage, “if you don't know where you are going, you will probably end up somewhere else” is as true for investing as anything else. Everything from the investment amount to the asset class you choose should be aligned with the financial goal you have in mind. Many times investors focus on the latest investment fads or on maximizing returns on investment in the short term instead of designing an investment portfolio that has a high probability of achieving their long term investment goals.

2. Failing to diversify enough

Most of the time investors invest in too many funds for the sake of diversification in a portfolio. However, you should understand that each mutual fund scheme is a portfolio of diversified securities in itself. Therefore investing in multiple schemes of the same category from different AMCs results in nothing but portfolio overlapping that can be disastrous and thereby can affect the performance. Instead of opting for it, investing in 2-3 schemes to the maximum helps in achieving the benefit of diversification.

3. Not reviewing Investment regularly

If you are invested in a diversified portfolio, there is a good chance that some assets you choose will go up while others will go down. Because of this, at the end of the year, the portfolio you built with proper planning may start to look quite different. Hence, don't get too far off track! Check-in regularly (at a minimum once a year) to make sure that the investment you would have started doesn’t need rebalancing.

4. Reacting to the News

There are plenty of 24-hour news channels that show you a lot of information and try to convince you to act on the investment. However, the key is to parse valuable information out of all the noise. Successful and seasoned investors gather information from several sources and conduct their own research and analysis. Using the news as a sole source of investment analysis is a common mistake because by the time this information has come to the public, it has already factored into market pricing.

5. Trying to be a Market timing genius

Trying to time the market kills returns. Even seasoned investors often fail to do it successfully. Instead of trying to catch the perfect time, investors should stay invested in all market time frames. In the last 30 years, one could have earned 13.48% annualized returns by continuously staying invested. However, if you miss the just 5 best days in trying to time the market, the returns drop to 11.27% and a further drop to 5.10% if one misses the best 30 days. So instead of making the mistake of market timing stay invested for the long tenure.