Absence of a goal: Not chalked out a goal yet? What’s holding you? Before you park your money blindly in stocks, fixed deposits or the like ascertain when you’d need it. Do you have atleast three to five years? Or would you need your money before that?
For, your money will be able to work more for you that way. If you have a time period of atleast around a year, consider investing in equities. If you think you’d need your money before that, liquid funds are for you. Equities outperform all other investment avenues easily in the long run. And if age is on your side and you’re considering a long time horizon, plunge into equities head on.
Absence of an emergency fund: No emergency fund yet? Life is unpredictable. Set aside funds for an emergency right away. Put aside atleast three months of your monthly expenses if you’re single. And if you have dependents, invest a minimum of six months of your monthly expenses in a liquid fund. You could park your money in flexi deposits, liquid mutual funds to name a few. But take into account the tax implications.
No insurance cover: Not given a thought to insurance yet? You’re not alone. For most, insurance is just another tax saving avenue. But reality dawns when illnesses or death strikes. And by then its too late. Insurance is your safety net that’ll help you handle uncertainties of life with ease. Insure yourself right away if you have dependents. Buy a pure risk cover for the maximum term possible. It’s the cheapest insurance you can buy. A pure risk cover is a must if you have liabilities such as a loan. If you’re a male aged 25 years of age you would be able to easily get a pure risk cover of Rs 10 lakh for an annual premium of around Rs 2,600/- for a 20 year term.
Being too greedy: Who doesn’t want to rake in the most moolah from his investments? But then, opines Bijal Bakhai, certified financial planner, “When your investments have already raked in high returns, it makes sense to slice and book profits. If you wait further to make more, chances are you may end up losing even what you’ve earned. So be contented. If you’ve invested in equity for a year, expect around 18% to 24% and in case of debt expect returns of about eight and a half percent”.
Selling at panic: Collective selling, acting on rumours without basis is akin to herd mentality and can prove dangerous. The stock market is not for the weak hearted so analyse the situation and decide whether to stay invested or ship out.
Borrowing for speculative gains: Banks do offer loans on securities no doubt, but borrowing heavily for speculative gains may mean taking high risks and can ruin your future financially.
Timing the market: Its time in the market and not timing the market that helps you gain the most. Experts have time and again stressed on how even the so-called veterans have not been able to succeed at this one. So don’t ever time the market. Believe in long term investing and watch your investments grow.