Investment in simple terms is allocation of your funds in several possible ways expecting some return in the future. It can help you secure your retirement. When allocated in proper sectors, investments are highly beneficial. Despite all these advantages, people call investing a risky job. Bad investing habits can put you in deep trouble. Here are a few bad investing habits that you need to cut down right now.
1. Improper planning before investing
The first step in investing is to do research work on, “When and Where to invest?”. This is a herculean task. Before allocating your fund, you need to understand the pros and cons associated with each investment. Fixing a plan will help you evade much of the risk associated with the investment. This basic information you gain will help you choose a suitable sector for you to invest in.
To start with, choose an investment plan which is the least risky. You can seek advice and expert opinions in the initial stages of investment. But, it is not always advisable. Jot down your investment plan and stick to it. It is following the plan that is more important in investment. Prepare a backup, as it can help you survive an unexpected wreck in the plan. If you are already an investor and invest without any research, then you are in absolute risk right now. Begin a new plan and invest accordingly for better benefits.
2. Avoiding risks
This is yet another bad investment habit that an investor has to quit if he wishes to be successful. As mentioned earlier, investing is indeed a risky job. But if you wait for the storm to pass by, you can never enjoy the rain. This suits well for investments too. Making a risky move has two possibilities. You either get benefitted or you lose. An intelligent investor would take the risk and invest, but with a proper backup plan. If it hits right, you gain. If not, better luck next time. This is the kind of attitude an investor must possess.
If you count on the risk for every penny you invest, you can never make a move. Take the risk and make it through. Who knows you might even gain from it. Avoiding risks means you are staying safe. Safe and away, not just from losses but also from benefits. Prepare a perfect backup plan and execute it, to enjoy benefits even from a risky investment. Try to take decisions according to the situation you are in. Risk what you have, but try to have control over the situation. This might help you manage through the mishaps.
3. Following the crowd
Typical human nature is to follow the crowd. This kind of behaviour is referred to as herd mentality. People believe that following the crowd keeps them safe. But this isn’t true in case of investing. Who knows, the entire crowd may even sink. Because “If one crore people quote something foolish, it is still foolish.” Your investment plans and expectations are completely different from that of your neighbours. In that case, making an investment that is similar to that of your neighbour is of no use to you.
Try to avoid herd mentality and stick to your plans instead. Analyse for yourself the positives and negatives, and then, make your investment. This has led to the formation of an investment bubble. Investment bubble is the inflation in the price of a particular product, way beyond its actual value. This is mostly because of the investors, who continue to buy these products at a higher price. When the price still goes high, and no one is willing to buy those products, then the bible collapses. This will put you in deep trouble. hence, herd mentality is strictly inadvisable.
4. Sticking on to expert opinions
For beginners who are new to investment, the first thing they follow is the opinion from an expert in the field. This can help you up to certain limits. Beyond which you have to craft a plan for yourself. Expert opinions are not always reliable. Learn to make decisions according to the situation you are in. Study the market from time to time. Analyse and derive conclusions on how to take the next step. Experts don’t always have to be right. And giving a check on an expert’s opinion doesn’t harm you in any way. Here again, people tend to follow the expert.
This is very much similar to the herd mentality that is mentioned above. Get opinions, verify them for yourself and proceed. Remember expert opinions are not Holy books. You are the investor and it is up to you to make decisions. Experts can only provide their opinions.
5. Relying too much on short term returns
This is a bad investment habit that we observe in most people who are new to the market. They invest today and expect the returns tomorrow. This is not possible, as the market keeps fluctuating. One has to wait to relish the benefits of an investment. The simplest definition of investment is, benefit on a long term run. Frequently checking on your investment can be disastrous. It will leave you stressed and panicked.
Wait until you enjoy the real benefit. Relying on short term returns usually incurs a loss. For instance, let us consider you buying a share that is priced high today. You expect the price to shoot up in the forthcoming days. And the next day you find that the price of that particular share is going down. Frightened by the thought that the prices would still go down, you sell the shares for a price, that is lower than the value you bought it for. This inflicts a loss.
The market is indeed a risky job. If you find the prices falling, wait until it goes up. Frequent checks on the values are of no benefit. Keep in mind to purchase investments at a lower price and sell it off at higher pricing to enjoy the benefits. Expecting short term returns will only ruin your investment.
6. Trying to predict the market
For those who are investing in the stocks, this is a bad investing habit you need to drop off today. Not just for the market, for any portfolio in that case. Remember, all portfolios are dynamic in terms of value. You can never predict the future. Before you invest, analyse well and then execute your plan.
And do not try timing the market. No one can predict the market on all occasions. And definitely, a common man is not an expert to do so. When you try to predict the market and it doesn’t go as you expected it to, it will only create panic. Before investing, make a complete study on how it had performed before. A mere prediction will just leave you lost.
7. Putting all your investment in one portfolio
There are various possible portfolios to put your investments in. Putting your entire investment in one basket is highly risky. You might end up in a heavy loss if that particular portfolio fails. A wise investor would diversify his/her funds into different portfolios. This partitioning would help them eliminate the risk involved in dumping all your money under one portfolio.
Just consider an example of an investor, who initially begins with a small fund in the shares. He finds it beneficial and so he keeps investing repeatedly in the same share, without any alternative. And one fine day, the market crashes. This will incur a heavy loss. The best alternative the investor could have done is to split his investment in market, property, gold and other possible investing options.
Under this condition, even if the market falls, he could escape the loss from the investments he made in the other portfolios. This is what a wise investor would follow. Putting all your eggs in one basket is highly risky. Never do so. Analyse and check the portfolio well before investing. Make lesser investments in the ones, that you feel are risky. Split accordingly to enjoy the benefits of all possible investments.
8. Trusting on past performance
If you are a frequent investor, then your experience is your biggest asset. You can rely on it to make decisions. But always believing that the market would behave the same way as the past is stupidity. The market is highly dynamic and is subject to several risk factors. Keep this in mind before investing. There is every chance that a stock that fetched you gains in the past can incur you with a loss.
Try all possible ways in your plan. And do not blindly trust your past experiences to make current or future decisions. Include them as a part of your analysis to find a suitable plan. But a 100 per cent reliability is inadvisable. This works very much synonymous with expert opinion. Though you are an expert, remember, the market can topple down at any moment.
9. Selling stocks when prices drop
An investor must know when to buy and when to sell. Timing is highly essential to be a successful investor. A common man would tend to buy a stock that is priced high. He does this with a hope that the prices would shoot up further and he would be benefitted. But a true investor would find this pricing high, he would wait until the prices drop to buy the stocks. It is always advisable to buy investments at a lower price and wait for it to gain price over time.
This will benefit you. One other important thing to remember in investments is, “Do not make decisions when you are low”. When the prices of stock fall, do not decide to sell them off. Wait until the price goes up again. This might take some time. But if you had made appropriate research and if you are sure that the prices would go up, then wait. Do not decide to sell stocks when you find the prices falling. This might be difficult, but this is what a right investor would do.
10. Failure in reconstructing your investment plan
Once you gain benefit from an investment, you have the benefits. Along with it, you possess the experience too. Use this experience to create further investment plans. You would now know, the dos and don’ts in investing. Make efficient use of them. Sticking on to a single investment plan for years together is not advisable.
You need to keep updating yourself with the market. Keep a track and try reconstructing a new plan for your new investment. This will help you stay in trend. You can gain much by doing so. Start from scratch again, perform research analyses and then build a new plan. This is what makes the difference between a common man and an investor. An investor would keep himself updated on the whereabouts and try to make benefit out of the situation he is in.
Whereas a common man would wait for the situation, that matches his action plan to get benefitted. To be an investor is to think in all dimensions and then craft a plan. Include as many possibilities and backups in your plan. It might be of great use when you are stuck in the midst.
Apart from all these, there are other few habits that you need to give up, to be successful. Having an emotional attachment with the investment can be hazardous. Try to avoid the connection and give up on the investment if you find the value dropping. Exiting the market also requires courage. You need to exit a portfolio if you realise that it would no longer fetch you benefits. Avoid taking unnecessary risks. Try to avoid getting carried away by greed. A decent benefit is always better. Don’t work in a haste. Try to act and react according to the timing and the market situation. All these habits will help you survive the sea of investment. Think right, Plan right and Act right to get the best benefits.