Investors generally prefer long term investments in mutual funds, stocks, equities and other financial avenues that are subject to market risks. Those opting for short-term investments in these avenues commonly do so as professionals, or at least should. Basic and avoidable mistakes are one of the most common reasons behind financial losses in such investments.
Moreover, every individual should also understand that investments are not only about developing assets or returns but also about securing the funds. Smart investment plans in sync with an individual’s financial capability and prospects are vital. Important factors like risk, flexibility, liquidity should be considered even before the rate of interest.
Thus, efficient methods are the most suitable way to avoid investment mistakes. Investors need to know about the type of investments available to asses all the factors. Here is the list –
Types of investment
Taking the risk factor into account, there are 2 types of investments available in the market.
Investors with high-risk appetite opt for endowment avenues like stocks and equities. These options come with high returns. But the returns are also unpredictable, as they are subject to market fluctuations.
Contrarily, financers with a low-risk appetite should always opt for secured options like fixed deposits. It comes with moderate returns, the flexibility of usage and most importantly, assured returns. NBFCs like Bajaj Finance provide one of the best Fixed Deposit rates in the market of up to 8.35%.
Now, before opting for any investment option, you should keep the risk factor in mind. Moving further here is a list of 5 common blunders that investors do –
One track investment
Most individuals invest in a single investment scheme and either generate below-par returns or end up taking too much risk.
Diversifying is one of the most efficient plans to accumulate wealth. Proper diversification of invested funds and schemes is vital to gain through the positive and adverse market or economic scenarios.
Investing in different avenues with same risk profile is also not advisable. If you are considering the stock market to invest some of your assets then the other avenues should be non-market-linked such as FDs, or at least non-related markets – real estate, bonds, commodities, gold, etc. This way you can improve your investment portfolio and enhance your returns.
No investment plan
Research has shown that individuals who invest in analytical and efficient financial planning are more likely to enjoy a better life. Similar detailed research is required before any smart investment. Well-aligned implementation of different market strategies over time is sure to show results.
Ignoring the risk factor
Ignoring the risk factor is the most common blunder individuals make with the hope of gaining higher returns. You should always invest as per your risk-taking capacity. If you can’t digest the volatility of the market then you should go for a secured regular return. Or you can invest in reputed or multinational shares but beware of small-company stocks. With the smart investment, you can protect your financial losses.
Moreover, if you are already generating huge returns you should always look out for the risk-portfolio to understand the amount you could lose if things are averse.
Liquidity in finance means if you can convert your investment into cash in your financial emergency. This is one of the major factors you should consider before investing. Investments options like stock, mutual funds, FDs, etc. are considered as liquid investments. You can opt for FDs with some of the best fixed deposit rates to invest with high liquidity.
In simple words, liquidity allows you to withdraw yourself completely or partially from an investment without locking in your cash.
Forgetting the tenor
Lastly, you also need to keep the investment tenor in your mind. Before entering into the investment scheme you need to be clear about the purpose too. According to your plan, choose the tenor so that you can achieve your financial goals accordingly. Once you understand your time period, you can opt for the best investment options available in the market.
In short, mistakes will happen in due course. But try to avoid these basic mistakes to maintain a well-developed portfolio. As an investor, you should always opt for smart investment avenues according to your risk-digesting capacity. Set your priorities and track your goals to increase your wealth. Unnecessary loss of money is never preferable.