To be successful in investing one has to do only a few things right as long as there are not too many mistakes. Warren Buffet and many other leading wealth managers believe this. The game of investing can be won with patience, rationale and discipline more than intelligence or intense activity. As investors, while we should focus on the right things, there are also a few things which we normally ignore. A few mistakes of action or behaviour can cost us a lot of wealth and ruin the gains which we may make from our right decisions. We attempt to highlight some of these mistakes in this article to help…….
TOO MUCH OBSESSION WITH EQUITIES & PERFORMANCE
Finding too much focus or obsession on equities is not uncommon. In fact for most of us, it would be a sort of ritual to see holdings and performance of mutual fund equity schemes or direct equities on a very frequent basis. We instantly look into our portfolio after any news headline or event affecting the markets. Do we show such level of inquisitiveness or impatience for other asset classes? Is it advised? The answer is evidently no. While we do need to be active and aware of our portfolio, having said so, we should also give adequate time for equity asset class to show their true nature. We may review and make changes in our portfolio at a frequency of say six months at a minimum or when any major event happens in our life or in markets. Beyond that, it is not advised to focus primarily on either performance or actual underlying holdings.
NOT LOOKING AT THE BIGGER PICTURE
Another common mistake we often commit is when we do not look ourselves at a consolidated level in terms of our investments. We are more comfortable looking at different investments with differ shades of color. For real estate, we have a different approach and risk profile, for bank deposits or other traditional fixed income savings, we have an entirely different approach. When it comes to mutual funds or equities, again our risk appetite and approach begins to differ.For all these different avenues of investments, be it own business, real estate, gold, fixed income or equities, it is very possible that we hold different risk profile and returns expectations. For example, we may sound very comfortable with real estate for long term and would be happy to blindly stay invested for over 5 years but when it comes to mutual funds & equities, we may demand performance even in short periods of time and then be impatient if expectations are not met. We may never sell real estate if it is at a loss but would be most eager to offload any non-performing stock immediately.
NOT INCREASING SAVINGS WITH TIME
We normally witness a rise in our savings on a yearly basis which is generally in the inflation range, at the lower end. In planning our budgets, we account for a rise in expenses – from entertainment to children school fees and from maid salary to new gadgets. But rarely do we increase the savings rate. That is the default balance figure remaining after accounting for rise in everything else. Your savings has to increase with time. If you did an SIP of say 10,000 3 years back but have not increased it, you are making a mistake. Effectively it means that you are saving a lot less today than 3 years ago. Assuming a retail inflation of 10%, it means that you have reduced your savings to Rs.7,513/- from 10,000 3 years ago in real terms while your income has increased. With time, be it any form or method of saving, the savings rate has to rise. While it may sound difficult, we should aim to increase our savings by at least the rate of inflation, every year, and then accordingly adjust our other budget figures. That means, starting additional SIPs or increasing the SIP amount. The higher the savings rate rise, the better will be your financial future.
CONCLUSION
There are many behavioural aspects to investing. In this article, we have discusse some habits which do not fall under the preview of emotions or rationality or decision making. The above behaviours or
mistakes are something we practice without really being aware of it. It is time that we recognize them and take remedial actions for correcting these behaviour. The correction demands that we change our approach to how we look at our portfolios while being updated with our savings plan as we prosper in life. There is science behind the progress of humans. And the foundation of successful societies are built on pillars of logic and science. Progress happens when work gets done by those who are experts as they do their things.
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