5 Mistakes that You Must Avoid When Investing in Stock Markets

Many investors keep making the same mistakes without realizing what went wrong. The reason is simple - they lack a basic understanding of how investments work, and most importantly they do not have someone to guide them. In this blog post, we discuss some of the common mistakes that most investors make and ways to help you tackle these problems.

1. Lack of Proper Planning

“Failing to plan in planning to fail”. It’s your hard earned money and you can’t just lose it like that, and therefore, the most important thing to do, before you start investing, is to have a proper plan. Work with a financial advisor to discuss your investment goals, limitations, time horizon and more to get a realistic picture of what returns you can expect. Advance planning can also help you stay prepared for any untoward incidence, for instance, if the markets started crashing you will be in a position to take calculated decisions, instead of just randomly buying and selling stocks.

2. Getting Impatient, Too Early

Though people start investing with a long term view in mind such as their child’s education, their retirement, for buying a house, they often start getting restless when the stock markets behave erratic. People who invest in stock markets with a long term view of 10, 15, 20 or more years in mind should not be concerned about how the markets are performing in the near term. Historically, the stock markets have always delivered better returns as compared to most investment options, and therefore it is advisable to stay calm if the markets are not performing well in the near term.

3. Using too Much Margin

While the margin money (usually the money one borrows from the broker) can help you make more money, the downside is that it can also wipe out a substantial amount of your money, if the markets don’t move in the direction, you thought they would. You should use margin only if you have the time and knowledge to closely monitor your positions, or if you are sure that you will be able to repay the borrowed amount to broker in case an emergency occurs, and you afford selling your positions at losses.

4. Making Investments Based on Tax Consequences

Though you should be smart enough to keep yourself updated about the various tax benefits that the government has to offer, you should not base your investments on tax consequences alone. Instead, it’s more important for you to invest basis the underlying value of the stock. Similarly, while you must be concerned about the advisory fees and commissions, as they can eat into your profits, you must stop bothering about them and try to explore opportunities of cheaper broking services, once you think you are getting a good enough deal.

5. Failing to Diversify

You must have heard the saying “Don’t put all your eggs in one basket.” It means do not risk everything on the outcome of one option. Failing to diversify, however, is one of the biggest mistakes investors make. They invest in a single stock or sector hoping that they will be able to maximize their returns, but when the markets move against their position, they have to suffer huge losses. It is, therefore, recommended that you must diversify their portfolio even if that means investing in a few stocks that give lower returns. This will help you create a well-diversified balanced portfolio that gives you far better results than most of the other asset classes.

Last Few Words

Most investors due to lack of knowledge and time prefer hiring the services of a professional advisor. If you are also planning to hire a professional advisor the best option is to go with a multi family office firm that has been trusted by some of the biggest and wealthiest investors. These multi family office firms usually cater to Family owned businesses, Senior Corporate Heads, various entrepreneurs in India and others.