Every human being makes mistakes. You can’t learn bicycle without falling from it, similarly you can’t earn money from your portfolio investments without losing money. One of the most common reasons why people are not able to make money in portfolio investment is their lack of knowledge, experience and lack of discipline while taking investment decisions.
Example: If you are having Rs 1 Lakh to invest and you are putting all your eggs in a single basket by investing entire Rs 100000 in stocks could be a big mistake for a person who doesn’t have much experience of researching stocks and equity markets as a whole. He carries a risk of losing his 50-90% of his investment capital.
Biggest Portfolio Investment Mistakes
Adopting a snail approach
Having 100% of your investment portfolio in fixed deposits and other debt instruments is nothing but aiming to reach the other end of your house in 10 years. Aiming to have a corpus of 30-50 Lakhs for a mid thirty year old man after 20 years is not great. Old fashioned debt instruments offer not more than 7-8% after tax returns whereas one can expect around 12% returns from balanced funds and around 15% from equity funds as shown in the table below. Investment of Rs 5000 per month in these debt instruments can fetch you around 29 Lakhs in 20 years. Debt instruments like PPF, fixed deposits, debt funds should have not more than 10-20% asset allocation in the early stages of your career.
Tip: Add equity and balanced funds to your portfolio along with debt instruments and aim for 12-15% returns
Your stock broker might be bullish on banking sector and on his recommendation you decided to invest 100% of your portfolio in banking stocks or in particular sector fund like Reliance Banking fund is another big mistake while making portfolio investment. The same thing happened in 2007 when all the research analysts and stock brokers were bullish on real estate and infrastructure sector and it ended up being the worst performing sectors in last 5 years. In a high interest rate scenario, you may kill your portfolio returns by investing in banking stocks
Tip: Add stocks from various sectors OR invest in diversified equity funds
No Defined Investment Approach
50% of the investment products are not bought by you, rather it is sold to you. You receive a SMS of guaranteed returns in ULIPs and you become interested in that product by listening to the word “guaranteed” A sales guy approaches you and sells you a pension plan just because you were in the good mood when the sales guy approached you. But do you need a pension plan in your portfolio or do you know the meaning of highest NAV or so called “guaranteed ULIP plans”. The answer would be “Never thought of it” Investments in India are not made with proper planning keeping in focus the long term goals like retirement or child marriage or buying a first or second house. A lot of investors make their equity investment decisions when markets are rising and everyone is talking of markets going to all time high levels.
Tip: Define your investment strategy and plan out your financial goals yourself or hire a financial planner
As I mentioned earlier, every person make mistakes and there should not be any problem in committing mistakes but repeating those mistakes is a blunder. If you think you are committing similar mistakes while making portfolio investments, try to improve on them and define a holistic approach towards investing. Track your portfolio investments after every 6-12 months. Don’t follow an aggressive or conservative approach while investing in financial products and make a personal financial plan as early as possible