Investment Mistakes To Avoid (Part 1: Before Investing)
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Investment planning is a long and thorough journey. Almost everyone makes mistakes during different stages of this journey, whether due to wrong judgment, ignorance or carelessness. Even a seemingly small error can have a drastic impact on your financial life.
This post will help you identify and avoid some of the commonly made investment mistakes. I have covered 3 different stages of investment planning journey:
- Initial stage – where you have not yet started any investment process.
- Second stage – where you decide and select suitable investments in order to build a solid portfolio.
- Final stage – where you have built your portfolio and are looking forward to financial freedom.
Stage 1 – Before Investing
This is the initial stage or more accurately, the thinking stage of the investment process. It will be relevant for a complete novice who wants to, but has not yet started his investment journey.
You might be thinking – If one hasn’t even started the process how can they make mistakes? But believe it or not it’s in this stage that some of the biggest mistakes are made. Mistakes in this stage cause more harm than any other.
Lets find out what these mistakes are, which you have to avoid:
It’s sad but true, that in the journey of financial planning, more people fail due to their inability to begin than their inability to finish. Majority of the people keep postponing their decision to start investing. Whatever maybe your justification, don’t become a victim of this toxic habit of delay, because even a small delay on your part is stopping you from getting rich.
Time is your greatest ally in an investment, the more time you give your investment to grow, the more wealth you will gain out of it. You need to understand the fact that time is indeed money when it comes to investing because with time the eighth wonder called compounding starts working its magic and makes you rich. Therefore it is vital that you stop waiting for that perfect tomorrow which might never come, and start investing today.
- Thinking that they are too young or too old
Another common error is considering oneself to be too young or too old for investment. Well there is no such thing as too young. Warren Buffet started investing at the age of 12. In fact the earlier you start the more wealth you can accumulate. But this doesn’t mean that there is some age limit and if you have crossed that age you are too old to start investing now. Agreed that you could have gained more had you started few years back, but it is never too late. You can reach your goals no matter what age you start investing, it’s just that if you start much later in life you have to invest & plan better to reach a financial goal.
- Selling yourself short
Many people believe in a common but wrong notion that investing is only for rich or financial experts or for those who can spend lots & lots of time studying and understanding the stock market. The result? People start doubting their ability of undertaking the investment journey and don’t start investing at all.
You don’t need to be rich to start investing. In fact you can start investing today, no matter what kind of budget you have. Mutual Funds SIP start from as low as ₹500 per month.
You needn’t be a financial expert either. All you are required to be expert at is understanding your own life goals – like buying a house in the next 5 years. If you know that, you can hire a financial expert to help you reach your goals. Or you can spend some time and select the right mutual fund based on your goals and leave the rest in the capable hands of the fund manager.
- Poor money management
Many people who want to start investing, don’t even know how much they can afford to set aside for investment purposes. This can cause serious problems in the future. If you don’t have a proper budget in place to manage your money you can never invest successfully. This is because you should know what money is suppose to go where. As in how much to set aside for an emergency fund, how much for household expenses, how much for paying utility bills etc. Any miscalculation can result in a disaster. Therefore, it is of utmost importance that you should have a proper budget in place so that you can decide how much money you can afford to invest.
- Not saving enough
It’s surprising how many people make the mistake of ignoring the importance of saving money. For starting your investment journey you need money, and the more you save the more money you can invest and accumulate wealth. The simple fact is while you might not have any control over the returns which you will earn, but you have control over how much money you can save and invest in order to earn more returns. Never ever underestimate the importance of saving. Even small savings can create a big corpus over time.
In fact, during the first few years your main focus should be on how to save more money, because the more you save and invest more quickly you can reach your financial goals.
Click here for Part 2: Mistakes to avoid while investing.
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