Money Magazine - 5 Investment Mistakes you should be Aware of!

Do you want to invest your money in way that it multiplies to give you multi fold future benefits? Well, a good investment is a result of adequate research and a few precautions.

Here are five investment mistakes you need to avoid:

1. Don’t be conned by the Past Performance
While making investment, make sure not to get in the lure of equity-based investments like mutual funds or shares, that have given astronomical returns in near past. Every day is a new day and nobody in the stock market can predict with conviction, the fate of any underlying share or fund.
Even the literature of Mutual Funds, clearly state the disclaimer when they showcase their past performance. In their fine print, they ask you not to get distracted by past performance as it may not be an indicator of future. According to some studies, this holds true 96% of the time.
If you are investing based on past performance it is like driving looking at the rear view mirror of the car. So don’t rely on history as your only indicator, make a wish choice after due consideration.

2. Diversification is the key
It is always advised never to keep all your eggs in one basket. If anything unexpected happens, your entire investment will be affected. Instead make numerous investments of small amounts. This will give you chances of safer and higher returns and mitigate your loss potential.
A good place to start is to diversify your monies between asset classes- equity, debt and cash based on your age. The younger you are, more risk you can afford to take. For small investors, Mutual Funds offer a great tool for diversification between various company shares. However, make sure you don’t over-diversify, as it may become difficult to keep a track of your investments.

3. Don’t get greedy to make a quick buck
Most of the time people invest most of their money in short term volatile stocks. But stock market is highly volatile. It poses such risks that a normal investor will not want to bear. On the other hand investment in long term equity assets is more likely to yield decent tax free returns
Such a long term investment is a good idea for you if you are looking at a constant and steady growth of your initial investment.

4. Failing to Plan is Planning to Fail
Don’t use lack of time or lack of knowledge as an excuse for not doing your due diligence before investing. This is an easy trap to fall into and can prove to be disastrous.
An investment without a plan is nothing but gambling in plain terms. If you do not research where you want to invest and invest everywhere without thinking, you might end up with a jackpot, but chances are that your investment will take a severe hit. So always look to collect all relevant information before you move forward with investing.

5. Keep the Liquidity Factor in Check
It is important to plan your liquidity while planning your investments. It is said that one should keep 6 months expenses in cash. This helps out in case one meets any unexpected situations like a job loss, or accidents. Always go for cashless options while taking insurance policies for health, accident, car etc.

Further, map out the goals in your life where you would need liquidity and make sure investments accordingly. Since, there is a price you need to pay for liquidity, ensure you plan out your investment terms in a way that you have the cash for both expected as well as unexpected expenses in the future.

Most of us rely on agents and banker to guide us with respect to how to make our investments. Only some agents tell you about both the risks and potential related to various kinds of investments. However, since they work for a commission, you cannot completely rely on their advice. Make sure you take keep your eyes open and not commit these deadly investment mistakes.