Investment is one of the most sure-shot ways of making your money work for you. It is an integral part of wealth creation and everyone learns the importance of investing money in the right assets sooner or later. However, if you are not well-versed with this popular money-making method then might end up committing mistakes that may cost you dearly.
Below I have listed a few common investment mistakes that you are probably making that are destroying your financial life.
Common Investment Mistakes You are Making
- Not having a financial plan: You won’t be motivated to save or invest your money if you don’t have any financial goals. Not having any goals is one of the biggest mistakes people commit that hamper their financial lives.
- Purchasing insurance policies as an investment: Most people think they are investing their money when buying an insurance policy. Very few people actually understand the difference between insurance policies, term plans, endowment plans, etc.
- Unaware of the power of compounding: According to Albert Einstein, the power of compounding is the eighth wonder of the world. Many people aren’t aware of the concept of compounding interest and lose out on the opportunity to make a significant amount of money with investing by not starting early. If you are one of them then you should definitely start reading about it and start investing your money wisely.
- Buying stocks based on tips without any knowledge: Stock market investing is a common dinner table topic among people who assert themselves as money-wise. This is also the first thing that comes to mind when thinking about making money with investing. However, the trick to making money in the stock market is to do your own research. Many people invest money based on tips given by pretentious amateurs and lose out on their money.
- No diversification of investment: Some people invest all their money in real estate, some invest it all in gold, some people prefer keeping it in a locker and some invest all their money in the stock market. Very few people understand the right way of diversifying investments to minimize risks and maximize profits.
- Buying excessive gold only to keep it in the locker: Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it. The return on investment on gold is very low as compared to other investment opportunities.
- Playing it too safe with their investments: Traditionally, people choose to invest their money in safe options like FD and PPF for a mere 6-7% annual interest rate. Some choose to keep their money in a savings account. While this will keep your money safe, it won’t help you grow your wealth. To be able to multiply your money, you need to take calculated risks that will help you get up to a 15% annual rate of interest.
- Lack of understanding between asset and liability: Every expensive item you purchase is not an asset. For example, a car is not an asset because it consumes fuel and has a maintenance cost. Also, its price depreciates as soon as you purchase it. Car is a necessity but people spend over their budget to buy a luxury car which is definitely a liability. Similarly, a house is an asset if it brings in money like rental income or appreciates in value. If you are living in that house and don’t plan to sell it then it is not an asset.
- Lack of patience: A lot of people lose their lifetime of savings because they don’t have the patience to understand their investment option and would blindly trust anyone who promises a huge return on their investment. Also, they tend to withdraw their investment sooner than they should when their money grows slightly instead of letting it grow further.
- Depending upon others for investment decisions: Unfortunately, a lot of people lack the right knowledge to make sound investment decisions. They are dependent upon others to suggest the right way to manage their money. This is the reason we have a lot of self-proclaimed experts giving stock market and investment tips. The question is, how many of them are actually helping you grow your wealth? The best way to be sure of your investment decisions is to take them yourself after gaining the right knowledge and doing your own research.
- Lack of disciplined investment: Instead of spending what is left after investing, people invest what is left after spending. This results in indiscipline investment. You should be clearer about how much you intend to invest to meet your financial goals and keep that money aside first. Then manage all your expenses with the remaining money.
Make sure to avoid these mistakes and start making money while you sleep with right and well-informed investment practices.