Investment refers to buying of any asset with a prospect of selling at a higher price to earn profits. The primary reason behind investing is to help you meet your financial goals or allow you to meet your future financial needs. Investing is not efficacious and there are times when an investment which looked promising might deliver under-achieving returns. This is why it is important to review your financial portfolio and mutual fund investment plans on a regular basis to ensure that you are on course. Investment actions have the potential to impact your wealth creation capacity. This article focusses on a few investment actions that can prove detrimental to your financial health.
Following the herd
One of the biggest investment actions that can hinder your wealth creation capacity is picking the market fad. Investors are often drawn to the idea of investing in funds that are creating a buzz in the investment market. However, in doing so they fail to invest in investment options that will help them serve their financial goals. Experts believe that random investment here and there solely on the basis of recent performance can be damaging to your portfolioas usually investors end up catching the fad by its tail.
Diversification can significantly help an investor in managing the overall risk of their portfolio and further dimmish the volatility of an investment’s price movements. However, over diversification can be quite hampering for the returns on your portfolio. Experts suggest that rather than looking for simply diversifying your investment portfolio, look for diversity. It is advised to diversify your investments across asset classes (debt funds, equities, money market instruments, etc.), location (international funds, sector funds, etc.) and other sub categories such as small-cap funds, large-cap funds, etc.
Investing for a short duration
Do you constantly find yourself switching from one mutual fund to another solely on a fund’s short-term performance?One invests in mutual funds after carefully creating a financial plan, you must try to stick through the plan. If one redeems their investment units before the anticipated investment duration, one lossesthe opportunity to witness the maximum potential growth of their investments. Hence, it is advised to stay put and redeem your investments only if your fund has been constantly offering poor returns for a prolonged period.
Do it yourself (DIY) approach to investments
Several investors prefer investing in mutual funds or stocks on their own. If you are someone who has enough knowledge and expertise about the market’s workings and know-hows, plus if you have the required time to dedicate to market analysis and investing, then you are better off investing on your own. However, if you are not possessed with the right skills to invest in markets or cannot afford to dedicate the required time, then you might consider taking the professional management services of a fund manager for a fee. A good financial advisor helps you devise a sound financial plan and helps you determine the right investment options needed to meet your goals.