Investment is nothing but purchasing any asset with a vision of trading at a substantially higher price to earn profits. One of the key reasons behind investing is to help an individual meet their financial and help them meet their financial needs in the future. However, you must be aware that investing is not always efficacious. An investment which might seem to deliver promising returns might backfire and provide under-achieving returns. Hence, it is essential that all investors must regularly review their portfolio and mutual fund investment plans to ensure that your investment are in line with your financial objectives. In this article, we will understand how various investment actions can impact your wealth creation capacity and what are the few investment actions that you must avoid in your investment journey.
Blindly following the mob
One of the biggest investment blunders that can drastically impact your portfolio is choosing the market fad. Often investors are drawn towards the notion of investing in mutual funds that have created a buzz in the market. However, in doing so, investors often invest in securities that do not really help them achieve their financial objectives. It is believed that random investment solely on the basis of following the market fad can be quite detrimental to your investment portfolio. This is because investors often end up entering the markets during its peak.
Over diversifying
Sure, diversification is a really good investment strategy that helps an investor diminishing their overall risk. It also helps to reduce the volatility associated with an investment’s price movements. However, overindulgence of anything is not good and the same is true for investments as well. Over diversifying your portfolio might turn detrimental for your investment portfolio instead of helping you. It is suggested that instead of looking for just diversifying your investment portfolio, diversity should be something you should focus on. Make an effort to diversify your investment portfolio across location (international funds), asset classes (money market instruments, equities, debt funds, etc.) and other categories such as large-cap funds, small-cap funds, multi-cap funds, etc. asses (debt funds, equities, money market instruments, etc.), location (international funds, sector funds, etc.) and other sub categories such as small-cap funds, large-cap funds, etc.
Investing for a short term
Do you run behind mutual fund schemes on the basis of their short-term performance? Or do you find yourself switching from one fund to another due to the latter’s better short-term performance? It might not be a good practice to do so. An investor must invest in mutual funds after carefully drafting a financial plan and making efforts to stick through it. When one withdraws their mutual fund investments before the expected investment tenure, one misses out on the opportunity of allowing their funds to portray maximum potential. This is why experts often advise investors to stay put and stay invested in the markets unless their mutual fund scheme has been constantly providing poor returns over a prolonged period.
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