Managing finances is in itself complex, which further takes shape of a mammoth task when investors fail to dedicate undivided attention towards their investments or portfolio,even when such action is sought periodically. While coping with other time demanding matters, investors tend to overlook certain aspects of their investments that could hurt them at a later stage.
Here’s a brief reiteration of things that investors must keep away from so as to make informed decisions.
Chasing past performance - Historical returns or past performance has almost become a barometer to judge future performance of a fund or stock. But, there are more factors in play than just past performance. It is imprudent to ignore market cycles or the economic environment as other decisive aspects that impact a fund or stock’s performance and should be considered before making any decision. For instance, change of fund manager under a mutual fund scheme can drastically impact a fund’s performance going forth, which nullifies the significance of how the fund performed during previous years under old fund manager.
Submerged in emotions - An outperforming stock or fund investment can instantly leave an indelible impression on an investor’s mind. Resultantly, it becomes hard for investors to let go off those investments easily even when they start languishing. Coming out of an unworthy investment is equally important as initiating or beginning a new investment.
Directionless Investing - Just like pushing a wall means working against oneself, investments lacking purpose might take one nowhere. No matter how disciplined or judicious those investments are, they might not produce results without a goal. Assigning a time or objective against an investment is necessary. For example, an investment of Rs 5 Lakh every year for next 10 years in a short-term fund become inadequate to meet the need of funding child’s higher education. Reason being that the investment was abruptly made in a debt instrument due to lack of vision as to what purpose it will solve. Tagging investments to goals is the only systematic way of maximising wealth.
Working against power of compounding - Most investors are unaware that time adds value to money at a far greater pace than imagined. To appreciate this fact, it is important to know how monthly savings convert into corpus over years. Here’s is a case scenario, where three different individuals start investing at an age of 25, 30 and 35 respectively.
|
|
A
|
B
|
C
|
|
Monthly Investment |
20000
|
30000
|
40000
|
|
Investment Tenure |
35
|
30
|
25
|
|
Expected Rate of Return |
10
|
10
|
10
|
|
Total Investment |
84 Lakh
|
1.08 Crore
|
1.20 Crore
|
|
Corpus At The End |
₹ 7,57,77,048.67
|
₹ 6,77,96,804.16
|
₹ 5,31,50,583.63
|
Clearly, investment started at an early age fetches higher corpus than those started during later years. Even Rs 10,000 additional investment in remaining two scenarios failed to match what a five-year difference has brought about in the first case.
Difficulty finding time - Lastly, juggling between work and personal life often creates time deficit and throws financial planning off track. Irregularity in reviewing portfolio or making investments then becomes a hurdle in accomplishing set objective. To deal with this situation, it is important to organise time or at least dedicate few hours a month to ensure that money is working in one’s favour.
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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