Investing process and costly mistakes to avoid

Investing process and costly mistakes to avoid

Investment Mistakes, Investment Planning, Life Goals, Successful Investing, Value INvestingJust yesterday, I was having a discussion with a friend who was keen on knowing about the markets and where they are heading. He is interested in investing for long term.

Instead of providing an answer ( Well!!! I myself do not know, nor does anyone else know where are the markets headed…. Anyone who claims he does should would just be sitting in Hawaii, enjoying the beaches and punching away his trades to glory isn’t it!!!! ūüôā )

OK so I probed hime further with a few questions about his financial goals, current assets and liability situation, savings etc and made him aware about the kind of questions he should be asking in order to achieve financial (investing) success over a long run.

Of course, he will have to devote some time towards understanding the products available to invest further… But diagnosing the current situation and having a clarity of financial / life goals is the important first step.

Here is a nice article in 4 parts which I had written quite some time back and wanted to bump up.

Life can only be understood backwards; but it must be lived forwards.

In the process of investing, one often makes mistakes. There is nothing wrong in it. However, repeating the same mistakes should be avoided. This is so much easier said then done. Never-the-less, we can always try. So, Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years.

I have been investing since 1997. Earlier part of the investment was when I was in US and then later after moving to India in 2005. I have been investing in both shares and real estate.

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience. You can also cultivate good habits of investing by avoiding the following most common mistakes.

So here goes……..

#1. Investing without a Goal

If one does not know to which port he is sailing, no wind is favorable.

Beginning investors often begin by Casual Investing without any goals. This quite often leads to pain and heartburn because, without any goals, investments are treated as speculation instruments solely aimed at making more money in a shorter span of time, by chasing market performance and acting on market swings, something similar to get-rich-quick scheme. (Speculation is a different ball game and of course, many people do succeed at it. However as in Investments, there are different set of rules, full time efforts, and a different mind set and discipline which needs to be followed.).

Different goals require different strategies. Broadly goals can be divided into three types according to time frames.

Long term Goals Рtypically 7+ years (e.g.: retirement corpus, child education, child marriage etc.) should invest in Long term high risk/high return growth investment assets.

Medium term goal¬†– typically 2 ‚Äď 7 yrs (e.g.: deposit on house, planning a sabbatical from work etc.) ¬†Require balanced risk investment strategy,

Short term goals Рtypically less than 2 yrs (e.g.: overseas holiday, purchase of car, any major house improvement expense etc) require conservative investment strategy.

So, Some of the following questions have to worked upon and answered to full satisfaction before setting out for investment: What am I investing for (Goal)? How much do I need for the goal to be met? What is the time frame of the investment going to be? Where do I need to invest? Should I do lump sum investment or Periodic investment? And so on…

Remember, failing to plan is planning to fail

#2. Not Starting to invest Early enough

This is one of the most common mistakes made by investors. Most of us keep waiting for the right time, or the right price, or the right time to begin investing.¬†Remember, Time in the market and not timing the market is the simple way to success in investing.¬†Please read my earlier post on¬†Invest early, Invest Wise, Utilize the power of compounding.………..¬†You can read posts here. (Part I,¬†Part II¬†,¬†Part III¬†& Part IV)

Share this post

Comments (2)

  • Returns from various asset classes for the period 1979-2010 | Enrich Life Finance Wise

    […] 18,50,000+ Tax free Dividends¬†(@ Sensex Level 18500) Over Long terms, Equities have outperformed, the other asset classes by a handsome margin. However, having said that it requires¬†tremendous¬†patience, discipline, good advise, serendipity ¬†and avoiding some costly mistakes in between to achieve those returns.¬† ¬† The ERLI Principle sums it up very well ~¬†Invest : ¬† – Early – Regularly – Long term perspective – Intelligently ¬† More on Investing Process and Costly Mistakes to avoid. […]

    October 30, 2012 at 1:05 PM
  • Returns from various asset classes for the period 1979-2012 | Enrich Life Finance Wise

    […] 18,50,000+ Tax free Dividends¬†(@ Sensex Level 18500) Over Long terms, Equities have outperformed, the other asset classes by a handsome margin. However, having said that it requires¬†tremendous¬†patience, discipline, good advise, serendipity ¬†and avoiding some costly mistakes in between to achieve those returns.¬† ¬† The ERLI Principle sums it up very well ~¬†Invest : ¬† – Early – Regularly – Long term perspective – Intelligently ¬† More on Investing Process and Costly Mistakes to avoid. […]

    October 30, 2012 at 1:07 PM

Leave a Reply

Your email address will not be published.