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Home » Finance » Investing » Avoid These Common Investment Errors

sara.cooper161
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Avoid These Common Investment Errors

Submitted by sara.cooper161
Thu, 31 Jan 2013

Mutual funds are always looked at with scepticism, because the decisions you make about them could make you very rich or very poor. But the important point here is that you're the one making the decisions. When you're starting out, it's natural for you to make mistakes. But both you and your money would be better off if your mistakes were as few as possible. Here are some common but crucial mistakes that investors make.

The first thing to keep in mind is to approach investments with a clear cut plan. You need to have at least a vague plan in place for you to make good on your investment. Decide how much money you want to earn and by which time - this will be a good starting point. Depending on this - you can decide whether you want to invest more in equity or debt funds. Equities are better for long terms goal while debt funds are better for short term goals. This is because equities are volatile - and long term goals are things you can take a risk on. Stop for a minute and give a thought to how you're going to allocate your funds. You have several options like stocks, bonds - both international and domestic - equities and so on. A common mistake that investors make is that they don't diversify. Diversification helps to minimise the level of risk you would face. One sector performs where another doesn't - this would mean that your risks are balanced. Also remember to diversify within a sector - invest in large, medium and small caps according to what your needs are.

Remember to have your mutual fund company change your investment plan as time moves on. You need to be aware whether you can risk your money in the market when you're close to retirement. In fact, the closer you are to your goal, the more you need to move your money to the less volatile debt funds. Don't be too confident that your fund managers will beat the index. The opposite is what consistently happens. You can use the index as a benchmark - to know how your mutual fund is performing. But if you're hoping to beat it, then you might as well forget it.

You need to keep in mind that you're hoping to have enough returns for a specific goal. Make a plan and stick to it - don't keep changing your funds to what ‘market analysis' says is the top mutual fund. The more you think that you're losing out on opportunities and moving your money, the more you actually do lose your money.

 

I am a financial adviser acting for a dealer group. Any queries regarding mutual funds and investing can be resolved. Be wise and choose among the top mutual funds available in the market.


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