Which are the 3 stock market investment blunders you should avoid

Summary

  • Investments are always subject to earnings potential and risk tolerance levels
  • By increasing times of investment, you can certainly maximise the benefits
  • Unsought advice for arranging investments can lead to unconditional traps

 

Investments are always subject to respective earnings potential, risk tolerance capacities of the individuals, as well as the time period for which a person is looking forward to investing. There can be cases when people with less amount of money desire to remain invested for a meaningful stretch of their lifetime.

By increasing the horizon of investment duration, you can certainly maximise the benefits of compounding, also may end up drawing a lucrative corpus while you sell off the assets. People who start the investment cycle in their late 40s are poised to lose a considerable chunk of monetary gains, if they could have developed the habit of investing in early age, sometime in their 20s.

A lot of unsolicited recommendations have been put out by a number of financial advisors, as well as the so-called bogus operators, who typically defraud people by providing lucrative tips that are picturised to portray quick gains in the short term.

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The unsought advice for arranging the personal investments can lead to unconditional traps, where people have lost substantial amounts of money. Other than these, individuals by themselves often search for recommendations and tips that guarantee high returns in no time.

When it comes to putting your hard-earned money in the markets, debt instruments, fixed-income securities, even in a financial product designed by a conventional banking partner, individuals should always take a calculative decision that can be beneficial for their personal greater good. Here we discuss three investment blunders that should be avoided in order to have maximum return and minimal risk.

1.      Investment beyond earnings

This is one of the most common habits of new-age investors and the people who are new to the markets. Investing well within the limits of your earnings potential is quite okay, the problem begins when people go beyond the earnings potential by investing on borrowed money. The investment made by borrowing money not only reduces the ultimate return, it also puts you at risk of a bigger collapse if your investment estimate goes sideways.

No matter you’ve borrowed the money from a bank, a non-banking financial corporation (NBFC), a friend, a local peer-to-peer lender, or other financial entities, the whole investment will remain fragile unless you are 100% sure that it will generate a better-than-expected return. And, this can’t be ascertained in a highly volatile system as stock markets are.

2.      Taking undue risk

Higher returns and a guesstimate suggesting large corpus are some of the primary reasons when a person willingly steps up to take undue financial risk on the investment which is beyond the individual risk-taking capacity. The notion is clear, higher the risk, higher may be the return, but it can’t be right every time.

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However, people have ended up losing money when they take unnecessary risk by putting the money in risky assets, especially the exposure to risk which are beyond individual control should be avoided at all costs. A person has other mandatory obligations as well, including meeting the expenses associated with the lifestyle, if married then a portion of funds for family expenditure provided that other members are also earning.

3.      Early exit

Terminating the investment contract earlier than the stipulated time, or the time advised by the financial planner, or period for which you have initially thought to remain put, may lessen the corpus which you’ll be receiving. Other than exceptional circumstances, a person should never exit an asset before the time he or she was supposed to conclude, especially if the direction of the particular investment is progressing ahead as planned.

Exiting from a fund, stock or any other debt instrument can eat up a large portion of your return which could have been recognised adequately if you have stayed. The assets which are designed to provide worthwhile gains in larger stretches of time, the long-term investments, should be dealt with utmost patience through their lifecycle.

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