If you are an investor, you need to be careful about how and where you are inevsting as making errors in investment can negatively affect your goals for wealth accumulation. It will also impact your financial resources and the duration needed to achieve those finacial goals. The most significant measure to minimise your investment errors is to recognise the most prevalent ones.
Check and avoid these most frequent investment mistakes:
Establish proper financial objectives
Establishing financial goal is the key before making any inevestment as financial goals represent the specific monetary achievements you aim to achieve within a designated timeframe, such as saving for your child’s education, planning for a vacation abroad, preparing for retirement, or funding a wedding.
By establishing your financial objective, you get a clearer understanding of the amount you need to save and invest to fulfill your aspirations. This nbot opnly helps you in directing your investment strategy but also aids in developing an optimal asset allocation plan that aligns with your risk tolerance, expected return, and investment horizon.
Don’t mix insurance with investment
The prime objective of getting a life insurance policy is to ensure that one’s family receives a replacement income in the event of an unexpected death. Hence, it is advisable that the coverage amount of the life insurance policy be at least 10 to 15 times the annual income of the insured individual. However, many investors get confused with insurance and investment, leading them to purchase endowment and money-back policies. These insurance products do not offer sufficient life coverage and yield subpar returns, in addition to having limited liquidity. On the other hand, term insurance policies deliver a higher level of coverage at a significantly lower premium.
Don’t overlook effects of inflation
In general, many investors overlook the effects of inflation on their financial objectives as a result, inflation diminishes the purchasing power of money, potentially resulting in insufficient funds to achieve these goals. Hence, it is neccesary to consider historical inflation trends when determining the approximate investment amount necessary for your financial aspirations.
Don’t get swayed by emotions
Sometimes, emotions -- particularly fear and greed -- influence the investment decisions of the investor. Greed leads them to increase their investments during bullish market phases, despite the fact that high valuations should raise concerns. Secondly, fear also prompts them to withdraw their current investments or refrain from making new ones during market downturns, even as equities are priced attractively. However, to promote disciplined investing, you must consider investing in mutual funds through Systematic Investment Plans.
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