Seven Reasons Why Investing On Your Own Could Backfire

Periodic access to stock market information and motivation to take charge of own financial future might encourage many investors to take a dive into direct investing. At times, investors debuting in stock markets or mutual funds might even hit beginner’s luck, and everything appears to be in place, until reality strikes.

It is crucial to understand that investing does not end right after writing a cheque towards a fund or placing an order online, rather it begins there. There are various aspects associated with investing such as periodic reviews, monitoring and knowing what-to-do and when. Few of the common errors that direct investors often make while investing are listed below. 

1. Losing sight of crucial goals - New investors often get carried away by bigger goals, which put them at risk of neglecting smaller but basic goals such as adequate insurance cover or emergency corpus. 
2. Disconnect between objective and investments- Every investment has an underlying investment objective or financial goal, but problem occurs when an investment product is a misfit for such an objective. Like equity stocks or mutual funds are not the right place for emergency corpus. Similarly retirement corpus cannot be built through debt vehicles alone.
3. Clueless about investment strategy - Each individual has a unique financial goal and risk appetite, which is paramount in developing an appropriate investment strategy. However, most of the direct investors place greater emphasis on products and end up accumulating more than they actually need. 
4. Placing lot of significance on historical returns - Even when most of the mutual funds categorically specify that ‘past performance is no guarantee of future returns,' most investors find themselves swayed away by stellar fund performances. Apparently, oversight of other parameters cost those investors dearly.
5. Herd mentality and peer influences - Direct investors are vulnerable to peer influences and herd mentality, i.e., they endorse the acts of others and try to follow the same path. This happens mostly in offices or professional and social groups as any investment strategy followed by one instantly becomes a handbook for others. In the process, investors forget about the differences that exist between risk appetite, life goals and existing financial circumstances between themselves and peers.
6. Improper diversification - Investing on own might even lead to under or over diversification, which means that a portfolio lacks the right mix of assets. Investing into too many funds with the same objective or putting all funds into real estate can lead to a skewed portfolio and so the returns.
7. Loose ends - As said earlier, investing process ends only after an investor reviews and monitors his/her portfolio. Leaving funds invested in a product for long could defeat the whole purpose of investing itself for lack of adequate returns. 

Taking swift decisions on how to manage investments such as booking profits and re-investing in better avenues are crucial, without which, an investment is not really an investment in a true sense.

Best way to counter these challenges is to seek professional advice as doing everything all alone can become a daunting task and might not fetch desired results.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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