Top 7 mistakes that young investors make

13th June 2017 | Decision Tree Consulting
Top 7 mistakes that young investors make

Did you know that if you begin investing in your 20s, in the first few years of starting a job, you could grow your savings exponentially over the next few years?Even if you’re 30, and you start saving about Rs 2000 per month, you would be left with Rs38.4 lakh once you retire at 60.

If you haven’t begun investing yet, it’s never too late to get started. Before you take the plunge, here are 7 mistakes to avoid.

1. Procrastination

Don’t delay until tomorrow, what you can do today.For example, at 25, if you start a systematic investment plan (SIP) of Rs 5,000 in an equity fund that gives 12% returns, in 30 years, you will earn Rs 1.77 crore. If you wait till 28 to start investing, the amount accumulated will be less by Rs 56 lakh. The longer the delay, the smaller is the corpus. An online SIP calculator will help you work out your returns.

2. Investing without a plan

Are you guilty of investing money just to meet those last-minute tax saving deadlines given by your company? Ad-hoc investing happens when you have to rely on advice from others. This does you more harm than good because the investment is in line with their financial objectives and not yours. Don’t block your money in unproductive investments. Take time out and make an investment plan with your financial goals in mind.

3. Not doing enough research

If you’re looking to invest, the options are aplenty-saving in a bank account, buying common stock, real estate, mutual funds, and short-term deposits. Just make sure you don’t invest in businesses you don t understand. Set some time aside every day to learn about investing. Your knowledge will increase and you’ll also end up enjoying it!

4. Falling for Ponzi schemes

Remember the Saradha scam, where 1.74 million people lost more than Rs 20,000 crore? These are investment schemes, which promise to give you high returns in a short time. They pay returns to existing investors out of money collected from new investors rather than from profits. Before you consider putting your life savings into these schemes, stop and think about what you’re doing. Remember, a way too good offer only exists in fairytales.

5. Failing to Diversify

While professional investors may be able to make a lot of money by investing in a few, focused areas, young investors should diversify. When you invest in only one set of securities offering the same returns and subject to the same regulations, your chances of loss also increases if one of these securities tank. Experts suggest not allocating more than 5 to 10% to any one investment.

6. Not willing to take risks

Don’t play it safe and invest in low-yielding fixed income instruments like FDs, NSCs, bonds, etc. As a young investor, you must take advantage of more aggressive asset classes, because you have fewer expenses, no one financially dependent on you and you won t need that money anytime soon.

7. Lack of Patience

A gradual yet steady investment approach will always work for you in your quest to wealth creation. While professionals can make educated guesses, no one can the future. Keep your expectations realistic with regard to the length, time and growth that each stock will encounter.

Saving for retirement should not be the only reason for you to plan your investments. Inflation cuts an average 3.87% of your money’s value every year. Investing is the best way to grow your money fast enough to beat inflation. If you start young, you have the advantage of time, the ability to withstand risk and opportunities to increase future income. 

Why wait? Start investing today!

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