5 Investment Mistakes You Should Avoid for More Returns

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Since the emergence of modern markets, investors have been making mistakes and are likely to do so in the years to come. Out of the common mistakes which investors generally make, seven of them are repeated on a regular basis. These seven mistakes are as follows:

1. Lack of planning

Unfortunately, most investors, perceive investment as a gamble and so, they do not think it necessary to come up with a proper planning. If you are one of them, you should consider having a personal investment policy which addresses issues such as risk, asset allocation, diversification and so on. A personal investment plan also helps build a clear understanding of goals and objectives, appropriate benchmarks and so on.

With written guidelines, you can have a viable long-term policy in place, even in the event of an unsettling situation in the stock market. Though working out a plan and adhering to it may sound easy on pen and paper but turns out to be difficult when one tries to put it into practice. That said, it will pay you dividends in the long run.

2. Short time horizon

As an investor, it is imperative to always have a long-term plan in hand. Decide on the length of time for which you wish to invest. For example, if you wish to save for retirement after 30 years, what happens in a year or two down the line should not bother you. But, of course, if you are saving for the college education of your daughter, who is in high school, you have a short time. Thus, you should allocate your assets accordingly. The bottom line is you should consider the time frame and base your plan in accordance with it.

3. Greater attention to financial data

It is important that you stick to your own investment plan rather than wondering about the stuff such as financial data which you see on financial news shows or read on newsletters. Ponder over it once: why would someone like to sell you an idea on a news show or a newsletter if it could generate millions? Why would one sell it just for $49? Wouldn’t they make millions out of it, yet keep it a secret? Why would they even reckon blabbing the secret in any way? Think twice – act wisely!

4. No rebalancing

Rebalancing refers to the act of balancing your portfolio by returning it depending upon the asset allocation. It constitutes one of the hardest components related to investment for a majority of investors as it forces an investor to not only sell their profitable assets but also buy more of those assets that are not performing as per expectations.

You might wonder why rebalancing is necessary. It is important as doing so will benefit the asset classes associated with your portfolio – it will be overweighed during peak times and underweighted during a slump. The trick here is to rebalance religiously to get long-term benefits.

5. Brooding over performance too frequently

This one is the direct opposite of rebalancing. The very thought that you are missing out can incite you to act fast or make decisions in haste. Such hasty decisions will lead you to make bad investments. If you are wondering why you did not invest in a particular asset class, which is doing well these days, in the past, you should consider that its growth cycle is nearing its end. Probably, you should have invested in it four years ago. A better idea would be to stick to your investment plan or considered relocating for better results.

The Bottom Line

Investors who identify the above mistakes and act in a timely manner get a clear advantage and are more likely to achieve their investment targets.

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