Do's and Don'ts Of Investing In Financial Markets

Do's and Don'ts Of Investing In Financial Markets

06 Sep 2018

Once you start taking your financial decisions for a brighter future, there are some Do's and Don'ts of financial markets which will help you in the early stages of your financial journey -

Do's of Investing:

  • Regular Investments: Every month, you should set aside or save a small percentage of your salary. And the earlier you start, more are the benefits, which will help you to create a great financial future for yourself.
  • Be Realistic: Investing is not just about seeking the highest possible returns. Consider your investment objectives to make informed, realistic investment decisions that will help you accomplish your financial goals.
  • Follow a Detailed Financial Plan: Develop a comprehensive financial plan to eliminate the urge to buy or sell investments without rationale or careful thought. Make it a conscious habit to write it down and set dates to review it periodically. Establishing your plan will help you in good times and bad times, and will help you scrutinize those wild tips you get from your family members, relatives or friends. You can start investing in Mutual Funds to create a corpus and then invest in other asset classes like property, gold and direct equity or capital market investments with a conservative approach - all this will help you achieve your financial goals easily. The thumb rule, however, is that all these investments decisions need to be planned in advance and should be followed up thoroughly.
  • Choose Investment Goals And Time Frames: Investment goals and time frames need to be appropriately chosen or else it can lead to disappointments.
  • Make Clear-Cut Goals – This step will help you to take a call on various investment options. Also, it is important for you to maintain a balance between various asset classes, because this will help you to avoid bringing down the entire pack even if there is an adverse effect on one asset class. Some common goals include – Kid’s Future, Retirement Planning, Estate Planning, Family Vacations and purchasing a Car.
  • Your plans for diversification: Decide on the risks you are comfortable taking to achieve your financial goals. A diversified portfolio gives both safety and reasonably higher returns.

Don'ts of Investing:

  • Avoid Trusting Others Blindly - This is your money. Think for yourself and research the expertise of anyone offering advice before you follow it. You should always do proper research before investing in any financial instrument and also evaluate the pros and cons before entering into any such agreements. In case you are not capable of doing research, then it is always better to take advice from a certified financial advisor who has rich experience in investing.
  • Avoid Fairy Tales - If something sounds too good to be true, it probably is. Red flags should go up if anyone promises a large guaranteed return on an investment. People may misguide you for higher returns in small duration, but this may result in heavy losses as high reward comes only after higher risk.
  • Avoid Relying on Past Performance - Choosing investments on their past performance is like driving using only the rearview mirror. Past performance is an achievement, not a predictor of what will come in the future.
  • Avoid Borrowing to Invest - If your investment doesn’t pan out, then you still will owe the money you’ve lost to the lender. Instead, stick to your investment goals and set aside savings that you specifically designate for investing.
  • Avoid Holding Only One Investment - Changes in markets can happen quickly — before you can even begin to react. Diversifying your portfolio will help to protect you during these swings, giving you time to make informed decisions. Having a balanced investment approach and creating a mix of Equity, Debt, Real Estate and Commodities portfolio may help you achieve stable long-term growth instead of investing all your money into one fund or one asset class.
  • Avoid Flipping Stocks or assets - Trying to “beat the market” by frequently buying and selling stocks is a losing proposition. In fact, nearly a majority of day traders lose money.
  • Avoid Getting Emotional - Having a plan and sticking to it can help you avoid mistakes and impulsive decisions. If you start making an emotional decision based on short-term developments, it becomes a big hindrance in reaching your long-term goal, so it is better to follow a disciplined approach with the long-term plan without any emotional change in your investing - this may help your investments to survive and prosper in the long term.

Finally it is consistency and long term approach which is the key to creating wealth, the trick is to start as soon as possible. And remember, waiting just means you make less money in the end.

So get moving & Happy Investing!

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