Investing is a simple word but needs decent amount of knowledge, skill and patience to make someone make money from money! There are lots of asset classes with their own flavor of risk and rewards and each of the asset classes demand investments from investors of varying risk profiles.
Mutual Funds, Stock Markets, Gold, Real Estate, Cryptocurrency, Bonds, Fixed Deposits etc are some of the asset classes that are accessible to most investors.
Most new investors commit mistakes and apparently lose their hard earned money in investing because they don’t have proper knowledge of asset classes.
In this article we will discuss some of the common mistakes that newbie investors do and how to avoid such mistakes:
EXPECTING HUGE RETURNS:
Most people hear about stock markets and flock to invest in random companies without proper knowledge of fundamentals with expectations of massive returns in a very short span of time.
They particularly target penny stocks and feel that any random Rs. 5 stock will easily become Rs. 10 because it is only an increment of Rs. 5 but that’s the catch!
An increment of Rs. 5 in a Rs. 5 stock is 100% return which they don’t understand. Returns on investments are calculated in terms of percentage and that’s where they lose money. It is not possible to generate such returns in such a short period of time.
PUTTING TOO MUCH MONEY IN RISKY ASSETS:
Investments are driven by greed and fear and there are many people who put money in riskier assets like cryptocurrencies to get higher returns becoming vulnerable to the fluctuations and apparently losing money.
It is a rule that one must put only that much in assets like crypto which one can afford to lose.
Diversification is the rule of investing and one must try to have a balanced portfolio with proportional investments across different asset classes.
NOT DOING PROPER RESEARCH:
People lose money by investing in random companies that are not good fundamentally or are overvalued and apparently term the financial markets as a gamble.
Well it is a gamble if one doesn’t know the rules and regulations.
If someone who doesn’t know how to drive a car undergoes an accident then is it the fault of the car?
Same is the case with the stock market.
For example recently NSE had barred trading of Brightcomm group shares and more than 500000 investors have got their money stuck in the company.
Now who is to be blamed for this?
Certainly the answer is the lack of knowledge of such investors.
NOT GIVING PROPER TIME TO GROW THE MONEY:
As mentioned above greed and fear drive investments and frequent buying and selling of any asset class eliminated the compounding from the game and apparently the investments don’t do well.
As for example most people frequently engage in buying and selling of shares in the market because they start fearing when the value of the investment starts to fall even a little bit and that does not do any help in growing the money.
FOLLOWING THE HERD:
Safety is one of the prime instincts in humans and the safest asset class is fixed deposit whose return is generally so minimal that even inflation is higher than the returns and people are apparently losing the value of the money.
At an young age the risk taking capability is the highest and one must refrain from putting too much money in fixed deposits.
And since people don’t have the knowledge of other asset classes they keep following the herd by investing in traditional asset classes like fixed deposits instead of looking for better options like equity, real estate etc. which could have possibly given multifold returns.
These are some of the common mistakes by beginner investor. Capital, time, knowledge and patience are the most important ingredients of a successful investment and this is the quality one must look and develop to grow wealth in the long run.
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