Dodge these Investment Pitfalls in 2020
January 23, 2020
As you take stock of the triumphs and blunders made in 2019, the new year is the best time to brush up on the basics and become a better investor.
Most mistakes investors make are due to their own biases which keep them from making rational decisions. These biases are psychological – they are basically ‘hard-wired’ into us as humans, and in many cases are very helpful in making decisions. In investing, however, they often lead us to poor decisions and loss of returns.
Here are some pitfalls you need to avoid throughout the investment journey as we enter the new year.
1) Out with the old and in with the new
As the difficulty in the market escalates, investors tend to concentrate their portfolio on an investment strategy that has worked previously, thus missing an important turning point.
Your investment strategy needs to adjust as the tides turn in the investment market. One should always reminisce that no asset class is designed or programmed to move in a straight ascending line. Warren Buffett has summarised it well in 18 words: “Volatility is not the same thing as risk, and anyone who thinks it is, will cost themselves money.”
For instance, temporary losses is often a cause of panic among investors. They tend to sell when equity asset prices start falling, whereas, actually they should be making purchases in a declining market. On the other hand, when equity prices are on the rise, investors generally tend to become avaricious expecting further gains, while that may not be the right move.
Instead, it is recommended to keep an open mind when it comes to investing and make sure you have a balanced, diversified investment mix.
2) Don’t let saving cost you money
Letting idle money waste away is a fool’s errand leading to lost opportunities. “The one thing I will tell you is the worst investment you can have is cash,” is how Buffett explains on how to view holding cash. If you chose to keep ₹50,000 under your mattress for 5 years instead of investing it with a compound interest of 10%, you choose to forego on a return of ₹30,592.05.
If you’re just saving and not investing, you’re setting yourself up to lose money in the long run. That’s because inflation causes prices to rise, which makes money less powerful over time. The anecdote of losing money to inflation is investing.
3) Quit being silent about money
Not only are we bad at dealing with money, but we’re also bad at talking about money. But, the good news is that the more we talk about it, the more confident we are and the more information we have to make better and less stressful financial decisions.
Sharing and comparing your financial wins and fails is a great way to keep yourself motivated and pick up valuable tips about how you can improve these circumstances more quickly and efficiently. Within this framework, one needs to bear in mind the fact that WHO you speak to on the topic of money and finances does matter. We at CAGRfunds, give you that “second opinion” you need and set you on track to meet your financial goals.
Mistakes are part of the investing process. Knowing what they are, when you’re committing them and how to avoid them will help you succeed as an investor. Watch this to take better control of your finances in 2020.