Investment is not simply about earning returns on your money but about making intelligent and consistent decisions.

Most individuals, however, treat investments like a game of luck by subscribing to “hot tips,” following trends, and then wondering why their investments are not growing.

The truth is that investing is 90% discipline and 10% decision.
Following are the five most common investment errors that people make and how to avoid them, to help you make smarter decisions.

1️⃣ Investing Without Establishing Clear Goals

People tend to invest without establishing “why” they are investing.
If you do not know your goal, making progress on implementing an effective investment strategy will be nearly impossible.
For example:

.1 Are you investing for retirement planning?

.2 Are you investing to purchase a house?

.3 Are you investing to prepare your child for college?

.4 Are you investing to create passive income?

Each of these investment approaches will reflect a different time horizon, differing levels of risk, and expected returns!

🎯 So how do we avoid this error?
Start by clarifying your goals. Set up categories for your investments as short, medium, and long-term goals.
This will help frame the appropriate investment vehicles for each investment goal. For example, use SIPs (systematic investment plans) for long-term goals, debt funds for medium-term defensive positions, and ELSS (equity-linked savings scheme) for tax-saving purposes.
2️⃣ Joining the Herd or Buying into Market Fad

The most significant trap in investing is the ‘herd’ approach, or simply purchasing something because everyone and their brother is buying it.

For example:
“Well, Bitcoin is going off; let’s buy now!”
“That IPO went up 200%, so I will put some of my stash into it as well!”

Generally, these “bad” decisions based on that emotional element will almost always show a loss when the market correction happens to that investment.

💡 How to sidestep:
Do your own research prior to buying into any option!! You should know and be educated about the company’s business model, the company’s fundamentals, and the company’s strong growth potential long-term—and if you don’t, you can always reach out to a financial advisor. There are firms like MY_OWN_CFO that assist investors like you and me with staying emotional and unbiased for our investments.

To reiterate, smart investors invest based on logic, not fad and hype.

3️⃣ Ignoring Risk and Diversifying

If you are putting your eggs in one basket, this is a disaster just waiting to happen!

Whether only investing in equities, or cryptocurrencies, or gold, or one investment, or something else, remember you put yourself in jeopardy. In general, it is known that EVERY investment comes with some element of risk. Do you know the best way to avoid this risk? Through a well-diversified portfolio.

⚖ Diversifying your portfolio is equivalent to the following:
Asset classes: Equities, debt, gold; and/or real estate
Sectors: Don’t wrap yourself up with only IT or maybe banking or pharma as well.
Geography: Foreign and domestic

📊 How to sidestep:
Experience has taught us the 70-20-10 rule. This is advice on how to budget your investment portfolio.
70% should be parked in mostly safe investments like mutual funds or blue-chip stocks.
Then only 20% should be moderately risky investments.
For the final 10% of your net worth, it is wise to invest in a portfolio of high-risk, high-return investments.

These helped to have a balanced portfolio to settle some of the emotional struggle during market fluctuations!
4️⃣ Attempting to Time the Market

Even professional traders are unable to predict the exact time to buy or when to sell.
Simply waiting for the “right moment” usually results in missed opportunities and excessive worrying.

Rather than shooting for timing the market, try to have the funds in the market for a longer period of time.
If you invest routinely through SIPs, you mitigate volatility in the markets; hence, you can average out every few months.

⏰ How to avoid this mistake:
Start investing EARLY and consistently; even if amounts are small, they will grow exponentially over time.
As Warren Buffett states, “The best time to invest was yesterday; the next best time is today.”

5️⃣ Seeking and Heeding Poor Professional Advice

Individuals often come to me and admit they have relied on friends, influencers, and random advice on social media to make investment decisions.
This is usually a way to half-baked conclusions.
A professional will be able to comprehend taxation, asset allocation, financing preferences, long-term planning, etc.–topics untrained individuals do not understand.

🤝 How to avoid this mistake:
Consider a partnered relationship with an expert like MY_OWN_CFO, who can:
– Analyze your financial goals
– Create a personalized investment plan
– Provide guidance on balancing risk and reward
– Maintain a tax-efficient approach while maximizing returns

In other terms, it’s best not to guess your way to wealth; rather, plan your way there.
An Added Recommendation for Thought: Regular Portfolio Reviews and Adjustments
That’s right—things change! Therefore, so too should your portfolio, and you should be reviewing and adjusting every 6 to 12 months. You need to evaluate if you need to increase your exposure to strong investments, decrease exposure to weaker investments, or account for any life changes like a new job, enhanced family estate, or change in expenses.
Setting a regular appointment with MY_OWN_CFO, you will be able to rest assured your portfolio is positioned to align with your forecasted & financial goals!