Five mistakes that do-it-yourself investors make

Investors often give more emphasis on right products rather than right investment strategy. In the process, they end up accumulating several products, which do not align with investment goals or fail to serve the end purpose.

Feb 12, 2016 09:02 IST India Infoline News Service

Given the self-motive driven advice given by the financial intermediaries, many individuals choose to take their financial decisions. By doing so, they believe that the investments opted by them are appropriate and will help them meet their goals. However, such beliefs could be unreal if the investments were undertaken on the basis of limited information.
 
For those who wish to achieve their investment goals, here are few things that need to be avoided.
 
Overlooking right investment strategy - Investors often give more emphasis on right products rather than right investment strategy. In the process, they end up accumulating several products, which do not align with investment goals or fail to serve the end purpose.
 
Risk with diversification - Absence of proper information about the objectives of investment products can lead to either over-diversification or under-diversification, both of which are counterproductive for an individual. For instance, taking a number of insurance policies does not mean that the individual has taken adequate cover based on future needs or human life value. Similarly, holding an array of mid or small cap based mutual funds does not necessarily diversify the portfolio risk. Thus, finding the right balance in investments is crucial.
 
Replicating what others are doing - One of the biggest problems of doing investments on own is the act of replicating what others are following. For example, if a friend is buying smaller cap based funds or stocks then following the same investment patterns. It is important to understand that the investment needs of every person are different from one another. Hence, one should not blindly follow somebody else’s investment routine.
 
Not expecting the unexpected - Investors are often so focused on investing that they totally ignore setting aside money for emergencies such as medical treatment, job loss, etc.
 
Absence of monitoring - Lastly, investors might show enthusiasm about investing their money but miss to review and monitor the progress of their investments periodically. Resultantly, they fail to rectify the gaps in time, rendering their investments efforts purposeless.

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