Top 6 Investment Mistakes to Avoid in 2021
As you start investing your money, you are bound to make certain mistakes. Read on to know about 6 common investment mistakes to avoid in 2021.
These are the mistakes you learn from, and make you experienced. But certain mistakes can be easily avoided and will save your hard-earned money and time. These are the common investment mistakes that young investors make when they enter the market.
Here we go:
1. Not getting started
The biggest mistake people make when it comes to investing is not investing early. Later, they regret that they underestimated the power of compounding. The sooner you start, the better it is.
The information available out there in this digital age is humongous. But at the same time, it is rarely structured. It gets overwhelming as the financial jargon almost sounds like a foreign language. And in case you happen to be from a non-financial background, you get perplexed on how and where to start investing.
The fear of losing your hard-earned money seems terrible and a reason enough to stay away. But you’ll lose more by keeping your money and just saving as it is bound to lose value over time.
So if you feel confused or helpless regarding investment, ask for help.
You can also check finance articles on DU Assassins, here I have explained the things in the simplest manner possible so that even a non-finance person can understand.
Also read: 20 basic terms for stock market beginners
2. Expecting unrealistic returns
The stock market is not a get-rich-quick scheme. You cannot expect your paisa to double in 25 days. Many people enter the stock market with these unrealistic expectations.
They take crazy risks and blame the market when they lose money. That is not how it works. If it was the case, no businesses would be running today. Everyone would earn from investing in the stock market only. Sure, the market can give you very high returns but it happens when you strategically invest for the long term.
3. Holding a loss-making stock
There are some companies which you invested in at some point in time. Now those companies are going into losses, the prices have fallen. And you are not selling them off just because you don’t want to face it.
You don’t want to book losses by selling them off. You hope that maybe they’ll bounce back in the future when deep inside you know that they most likely won’t.
Get out of this. Sell those shares. The longer you hold, there are more chances of that stock going even down and increasing your losses. Even worse, you are losing the opportunity cost of that money.
By selling those shares today, you can invest them in another company that gives you better returns.
4. Blindly following the investment gurus
It seems so tempting to just copy the portfolio of big investors like Rakesh Jhunjhunwala. If they have bought it, then it must be the best investment. No!
Two reasons why copying the portfolio of someone else is a terrible mistake:
- What works for others may not work for you. Everyone has different financial goals. Someone might have bought a share seeing the potential returns in 10 years. By blindly following, you might end up selling the same stock in 6 months at loss.
- You don’t know when they bought those stocks. Perhaps, they invested many years ago when the price was minimal and today its prices have shot up many times. In that case, it won’t help you book many profits.
5. Looking for investing tips and tricks
Just tell me which stock I should buy. Tell me which company will give a multi-bagger return in one year. Tell me the ultimate formula to analyze stocks. No one can tell you that. Simply because it doesn’t exist.
There is no guarantee in the stock market. You cannot expect anyone to predict just accurately the movement of the stock market. Not even the most experienced ones.
You should invest in what you know and not what you’ve heard. Always do your research before investing your hard-earned money in any random stock.
6. Not diversifying
It is good if you have done proper research on a company and are confident about its performance. But that doesn’t mean you have to invest all your savings into that company. At most, your major chunk can go into that stock.
Diversification of a portfolio is crucial. As the saying goes, “never put all your eggs in one basket.”
Investing is a brilliant way to grow your money. Avoid these common investment mistakes in 2021 and grow your money.
“Learn from the mistakes of others. Life is too short to make them all yourself.”
– Sam Levenson