Avoid Investing Habits That Can Derail Your Financial Future

Hemant Rustagi: Chief Executive Officer, Wiseinvest Advisors 

In today’s complex financial world, it is quite challenging for investors to build a portfolio to achieve their investment goals. However, on the positive side, there are numerous efficient investment options available and hence if they follow the right investment process, they can achieve investment success on a consistent basis. So, it is all about inculcating right investing habits. Unfortunately, many investors suffer as they imbibe some bad investing habits that not only put their hard earned money at risk but also result in leaving a gap between what they set out to achieve and what they actually achieve after their defined time horizon. Here are some of those bad investing habits and how investors can get rid of them:

Spending without any budget often results in having too little to invest. It’s an evil that can destroy the finances of a family. On the other hand, a household budget, if made practically and followed, can ensure reduction in wasteful expenditure and help in directing money towards achieving different investment goals.

Investing without a plan is like travelling without an itinerary. In other words, investment becomes directionless and investors often end up paying a heavy price over different time periods. Investors must get rid of this habit immediately and start following a financial planning process. This will help in ensuring that they practice asset allocation in the right manner and remain invested at all times during their decided time horizon

Many investors make the mistake of not starting their investment process early thinking that they don’t have enough time on hand. Needless to say, they end up compromising big time as every 10 years of delay in investment process requires them to invest 3 times more to build the same corpus as they would have built if they started investing 10 years ago. Therefore, investors must start investing as soon as they start working and increase investment amount gradually.

Combining investment with insurance 

In our country, there are millions of investors who have been investing heavily into traditional insurance products thinking that these are best suited for them as they get to achieve both i.e. insurance and investment. The fact remains that these products neither provide the kind of returns one would expect from long-term investments nor the quantum of risk cover one may require. Therefore, it is important to separate insurance from investment and choose the right products. For example, a combination of a term plan and mutual funds can be a much better option. 

Investing to save taxes in a haphazard manner

Investors often treat tax saving investments differently from other investments and do not choose options as a part of their asset allocation. No wonder, they end up making abrupt decisions at the fag-end of the financial year. By doing so, they not only make wrong investment decisions but also fail to get the best from their tax savings investments. Investors will do well by making tax saving investment a part of their overall investment plan as that will allow them to align these investments to their long-term investment goals.

Allowing emotions to drive their investment decisions 

Investors are often guilty of allowing their emotions to drive their investment decisions. As a result, they stay away from potentially best asset class like equity during market downturns and end up investing aggressively during rising markets. While they suffer because of wrong decisions, they suffer even more because they refuse to make changes as that would mean booking a loss. In reality, if they take corrective action, they can not only correct the mistake but give themselves a chance to recover losses and make money in the long run.

Compromising long-term goals for short-term gains 

It is common to see investors attempting to time the market to take advantage of the emerging market situations. More often than not, they end up making wrong decisions and suffer in the process. More importantly, they form certain mis-perceptions about an asset class like equity and stay away from it. It’s important to stay committed to one’s pre-decide asset allocation as that helps a great deal over time.