Most Common Investing Mistakes That Decision Makers Should Be Wary About
BENGALURU: Mistakes usually teach you a thing or two but when it comes to making business decisions, all retail investors stay concerned about avoiding any errors. Regardless of the mustering experience, investors often end up committing blunder while making retail decisions. ’To err, is human’; but knowing about some of the most common errors encountered in investment decisions will help investors to reach more efficient proposals. Let’s glance through some of these most common investing errors, you as an investor should know about.
Decision based on emotions
Retail investors, regardless of experience often take decisions which weigh emotions over logic. Investors can be seen getting emotional about specific asset class due to legacy issues such as prior investments made for the same. Historical reasons might also have a role to play in influencing such decisions. The most evident issue associated with such decision is that the asset allocation process is affected, which in turn poses as a hindrance to the process of financial planning.
Demonstration effect & peer pressure
Few investments reap success solely because on luck, rather than efficiency. Amused by the success, friends or neighbors often try to replicate the same in order to gain similar returns, but success in such scenario is never a guaranteed event.
Peer pressure is another factor which forces these investors to abolish logic while taking the correct decision. Peer pressure surfaces in situations where a decision is to be made and one person bases his decision on the collective decision of a group. This proves to be a waste of time and skill of that individual’s part, the one succumbing to peer pressure.
Complexity takes over the idea of simplicity
Many experienced and seasoned investment managers employ a ‘keep it simple’ approach to achieve a winning portfolio. But, this is not the case with every investor out there, as a large number of them believe in the need for complex systems. It’s essential that the portfolio designed for the investors is something they themselves easily comprehend. A simple portfolio would comprise of debt and equity mutual fund schemes, gold ETFs, term plans, and FDs. A complex portfolio on the contrary, will culminate lots of derivative products and structured products on real estate, but very less of mutual fund schemes and gold ETFs.
Read Also:
