“I have been working for almost 10 years now, earning well and investing very carefully too; Why am I not as rich as I should be? Why am I still in the middle class circle?”
At least 2 in 5 clients ask me similar questions. Do you know the key reason for this?
I am listing three common mistakes that you may be doing. Not only the lists. I am also giving you the best and easy to follow solutions to escape from doing these mistakes. Read ahead.
Mistake 1: How often do you take investment decisions on the spot?
Assume you are sleeping peacefully. Suddenly a big thud wakes you up. How do you react in such scenarios? Be it a cat or a thief. Immediately you grab an object available near you and ready to hit the threatening subject, right?
Do you react the same way while choosing an investment plan? If so, the chances are higher for you to under perform. Instant or spontaneous investment decisions do not help you to become rich as you wish. Studies have shown that even the professional investors fail to perform well when they take hasty, emotional, overly spontaneous or sudden decisions. That too while buying well structured products like mutual funds.
How can you avoid taking decisions on the spot?
Keep a pattern while building your investment portfolio and stick to it. Be a scriptwriter to your portfolio, set a pattern in buying or selling the investment products. Do not make hasty or spontaneous decisions just because your ‘hunch’ says so.
Does this mean you just keep quiet during market fluctuations? No, not at all. Rebalance your investment portfolio periodically.
Mistake 2: How long do you think before choosing an investment option?
One of my friends recently had a tough time at work because of poor performance. He has been identified with mild diabetes where he is refrained from taking whole sugar sweets. After few months, he seems to be doing fine again. I asked if diabetes made him physically weak earlier, he said no. He has been thinking too much about not able to eat sweets. The thought process sucked his energy and later reflected in his work. When he slowed down the thought process, he started performing well in his work.
Too much of thinking is not good while taking investment decisions as well. Do you know why? You lose lot of energy and the willpower in the thinking process. You become tired at the end of it. With less energy while ‘really’ taking a decision, you end up taking a wrong one.
How can one avoid thinking too much while taking investment decision?
Automating the thinking process will help a lot in taking the right decision. Do not waste your energy by thinking always about saving options. Strategize a plan on what are the products you would be interested in investing.
This can be done by analyzing the pros and cons of various products. Choose the ones depending on your risk tolerance. Streamline your thought process by planning in steps. Once you have a basic plan, start investing on it. For example, if you feel a particular mutual fund suits your requirement, invest in it. You may start with a smaller amount. Don’t wait until you analyze all the products. Slowly increase investing more money on other options that you choose.
Mistake 3: How frequently you take action?
Many investors love to think about investments. They like to read a lot about personal finance. They enjoy discussing with their friends about portfolio building. They show an enormous amount of enthusiasm in analyzing different investment options.
Just, thinking, reading, discussing, and analyzing about investments will not change the outcome of your investments. If you take decisions and act based on whatever you have read, discussed, thought over, and analyzed, then your outcome will change. Take financial and investment decisions and execute them as and when required.
Look out for the signs and symptoms for these three mistakes and completely avoid them. This will kick start your journey towards becoming rich.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at firstname.lastname@example.org