Invest Smartly this Diwali: 5 Common Mistakes Investors Need to Avoid
It’s time to invest smartly in this Diwali season. As the festive season arrives, advertisements promote increased spending by offering attractive sales and discounts. At the same time, recommendations to invest in gold and select stocks for the upcoming festive year are frequently highlighted.
However, an analysis of historical data reveals no specific evidence that investing during this period results in better or worse returns compared to any other time of the year. As such, investment strategies in mutual funds, stocks, or gold should be developed keeping this in mind.
Here are five common mistakes to avoid while investing in this Diwali:
1. Waiting for the Right Time to Invest in the Market:
Waiting for the right time to invest in the market is not a well-founded strategy because markets are unpredictable. Instead, it’s more reliable to focus on your financial goal and start investing today. The best time to invest was yesterday, and the other best time is today, so don’t delay! Start investing now to benefit from the power of compounding for long-term growth.
Chasing a return without a strategy can be catching, but aiming only for profit without a clear plan can be a risky choice. Instead, develop a solid plan aligned with your goals to navigate your financial journey effectively.
2. Risks of Investing in One Asset Class:
For example, the gold price surged around Rs.80000 recently, which can be tempting for investors who are looking to capitalize on its rally. However, if you place all your money into a single-class asset, this is rarely the best approach. Diversification is the smarter strategy for spreading investment across different asset classes to optimize risk and balance returns.
3. Withdrawing Investment Due to Market Volatility:
Withdrawing investments because of market volatility is a common reaction among investors. For instance, the Nifty50 index is currently down around 8% from its all-time high. Should this concern long-term investors? Not! However, many investors tend to panic and redeem their holdings. In contrast, a common investor understands the importance of patience, remains invested, and views market dips as opportunities to enhance their portfolio for long-term growth.
4. Decision-Making Solely Based on Past Return:
It’s attractive to be drawn to funds that have shown strong past performance, but making decisions based solely on historical returns can be misleading. Past performance is not an indicator of future results, as market conditions and economic factors are always changing. A more prudent approach is to consider the fund’s underlying strategy, its consistency over time, and how well it aligns with your financial goals.
5. Common Mistakes Made by the Beginners:
Mutual funds are a popular investment choice for both novice and seasoned investors, offering advantages like diversification, professional management, and flexibility. However, beginners in mutual fund investing frequently make mistakes that can affect their returns and also their financial goals.
