Crypto Investing
20 Nov 2020

5 Common Investing Mistakes People Do In India

Nisha Ramesh

We, humans, make a lot of mistakes very often.

As toddlers, we first fell before we learned to walk. Even as adults, we make many mistakes from time to time. But the question lies in whether we learn anything from these mistakes at all.  

In the investment landscape, every successful investor would have made mistakes in the past.

What makes them stand apart is that they never repeated the same mistake twice. There are a few others who learn from other’s mistakes too. 

“A good investor learns from his own mistake, the best investor learns from mistakes of others.”

We want you to be the best investor, so we share the most prominent investing mistakes most Indians tend to make. 

1. Lack of Planning

Many investors, especially first-time investors, invest in the financial market the same way they would gamble. They invest based on guesses and assumptions rather than facts and numbers.

An unplanned investment is even hazardous than a stash of money kept under your bed. Without a plan, goals don’t fall in place; the time horizon collapses, and investments become chaotic. 

  • How to avoid it?

The best gift you can give your financial self is time.

Take your time to research, study, and understand the investments before you start investing. Analyze whether a specific asset is feasible for you.

Identifying your goals, picking a strategy, and making a plan allows you to make an informed decision that will benefit only you in the long term.

2. FOMO [Fear of Missing Out]

FOMO is a term often associated with millennials.

Millennial investors put their money into assets with the fear of missing out on it.

In other words, if everyone is buying gold, they also want to buy gold. If everyone is buying stocks, they will also buy them as sheep of the same herd.

Investing in this mentality can cause havoc to your portfolio because what works for one person may not work for another. Blindly following the herd may lead to considerable losses in your investments. 

  • How to avoid it?

Investing in an asset just because your friend or neighbor, or cousin has invested in it may not be good for you. Make a thorough analysis of your investment profile, including your risk appetite, capital availability, and goals before investing.

Only invest if you have done your research and personally believe that the asset would add to your wealth. Instead of getting swayed by your peers, it is wise to make your own logical and informed decisions. 

3. Lack of Diversification

By putting all your eggs in a basket, you will be risking your entire investment.

Suppose you invest in just one asset class or similar assets. You will be exposed to a considerable loss when the investment plummets.

Diversification means spreading your investment over different non-related assets. This way, the risk of eroding your capital is minimized. 

  • How to avoid it?

The best way of having a diversified portfolio is to plan and gradually introduce new asset classes into your portfolio. It is best to have a combination of short-term investments, long-term investments, high and low-risk investments.

It is vital to have some alternate assets (assets other than stocks, bonds and money market) such as cryptocurrencies, gold etc. in the mix.

This way, you can shield your portfolio from any economic or market turndowns. 

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4. Poor Savings & Tax Planning

Many of us invest for just one reason – save tax.

We do not realize that in the course of avoiding tax, investors tend to miss out on other asset classes’ high returns. 

For instance, suppose someone is ready to invest in a fixed deposit with a 10-year lock-in period at the rate of 6% per annum. The same person avoids investing in stocks or cryptocurrencies that offer much higher returns in the long run.

From not having an emergency fund to keeping money in too many bank accounts, most retail investors also have low or no savings plans.

This may crush your finances when the economy goes for a toss. 

  • How to avoid it?

One way to deal with this is to get rid of the mentality that you need to invest ONLY to save tax.

There is much more to investing than just avoiding taxes.

Also, plan your savings wisely. Create an emergency fund for times such as the current pandemic. Keep as few bank accounts as possible to avoid a lot of investible cash being locked in a minimum balance. 

5. High Property & Physical Investments

The promise of guaranteed returns lures many Indian investors to put all their money in real estate and gold.

It almost leads to social pressure if you do not purchase gold or your own property.

Though the property’s value may inflate with time, the returns in terms of rental income in India are ~2-3%. After deducting tax, it is much lesser than what other assets offer. 

We have covered the risks of investing in gold in a separate article, do check it out. Excessive investments in property and gold could even lead to negative returns. 

  • How to avoid it?

Try to broaden your investments before plunging all into real estate and physical assets.

Before investing in a second property, calculate if its returns will break even with its EMI’s post-tax interest. Obsessively buying gold, especially for investment, may not be a good strategy, too, so re-think.

Make sure your portfolio is well balanced between other asset classes, too, before making additional investments in property and physical assets.

This way, you can enjoy the returns from other asset classes too.

Bottom Line

The mistakes mentioned above have impacted the financial lives of millions of investors.

I hope you understand the lesson from each mistake and apply it to your financial life. This way, you, too, can be a wise investor who succeeded by learning from other’s mistakes. 

Till then…Happy investing!

[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Nisha Ramesh

Content Writer

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