There are instances when we learn that so and so lost half of their money in the share market. While there are instances we hear that somebody quadrupled their money after investing in a certain plan. By some estimates, only 20% of the investment professionals are successful. Meaning, only 20% of investors actually book profits higher than the average investors. Now the question is how is the approach of 20% investors unique? If there is something common among successful investors, it is investing rules. By not making the common mistakes some individuals make, you can learn to be a successful investor.
Let’s look at the 5 common investment mistakes an individual makes while investing.
Mistake 1: Lack of patience
- Often a times individuals forget that a share is not a lottery ticket but a part-ownership in the organization. The impatience to ‘win’ and the fear of ‘losing’ is a trap people tend to be stuck in.
- Market fluctuations might trigger you but you should stay invested if the investment seems feasible.
- Short-term volatilities must be ignored to reach long-term growth. After all successful investing is more about patience and less about action.
Mistake 2: Return focused mindset
- It is natural to feel motivated about an investment that often gives oversized returns. But having a rigid and return-focused mindset is also a mistake a few people make.
- Sometimes investments with high return expectations have high risks associated with them. Ultimately an insanely high-risk factor (for you) must not leave you with a loss of sleep.
- Therefore, a wise approach is to choose the investment plan that has the risk factor up to how much you can bear.
Mistake 3: Not much diversification
- Diversification of the investment portfolio is a helpful tool to distribute risk. It is wisely said, “Don’t put all your eggs in one basket.” One of the most common mistakes people make is putting all the resources in a single company or investment.
- When one option returns a lesser value, the other segment covers the loss or sometimes, provides an overall gain.
- A popular idea suggests that an ideal portfolio must not have more than 5% to 10% of the total cash allocated in a single component.
Mistake 4: Relying on historical facts
- Another common mistake people tend to make is having blind faith in the performance of an investment without any analysis.
- People often put their hard-earned funds into an investment just because it outperformed in the past. Historical facts can only be used as a risk indicator, but not to predict the future performance with 100% certainty.
Mistake 5: Choosing an option solely based on recommendations
- Another common mistake an individual makes is investing in an option solely on the basis of a recommendation. It can be too risky to afford.
- Some people make the mistake of turning to a friend or an acquaintance for investment suggestions. But doing so might not be much fruitful because of differences in risk appetite, financial objectives, etc and lack of required financial knowledge.