It’s that time of the year again where joy and exuberance exude out of society. There’s music, chants, and symbolic gestures commemorating Lord Ram’s triumph over the 10 headed demon King, Ravana. There’s a lot to take away from this mythical classic that can be applied to several aspects of life including finance. As symbolism, we’d like to talk about 6 investment habits you can slay this Dussehra to regain your riches.
This article covers:
- Not diversifying investments
- Holding too much cash
- Avoiding advisory fees
- Falling victim to market noises
- Debt denial
- Taking out a loan to invest
Dussehra marks new beginnings! This is an opportunity to build new habits that can change the course of your future. One of the most imperative habits to build is that which helps with your financial security. Below are some of the investment habits you can change this Dussehra to help manage finances better in your life.
Not diversifying investments
One of the most common bad investment habits is poorly diversifying your portfolio. This means that you put all your eggs in one or very few baskets. In other words, all your money is parked in a single investment or asset class. This is a risky investment habit that can cause financial turmoil. Talk about having egg on your face!
In contrast, diversified portfolios contain a good mix of a variety of investments. This helps reduce risk and financial downswings caused due to the volatility of a specific asset class. Portfolios must be diversified even in widespread investment categories such as stocks. They may represent a major part of your portfolio but it is important to ensure that you have put your money to work in other asset classes.
It’s imperative that you discover a sweet spot between risk and reward. This would secure your investments while still being able to achieve your financial goals.
Holding too much cash
It’s crucial to have access to liquid or near-liquid cash for emergencies and unexpected financial disruptions. Furthermore, it’s a good idea to have cash handy for investment opportunities. That’s right! It’s true what they say. You’ve got to make your money work for you. But having too much cash lying around can be counterproductive in your quest to generate more income.
One of the biggest hardships of holding too much money is interest rates. The returns you get by holding cash in banks is low. The more money you have laying around, the more you’re potentially losing by not investing in additional asset classes. This may end up costing you a lot of money annually. Therefore, it is a wise investment decision to reduce your cash holdings for emergencies and unexpected financial requirements.
Avoiding advisory fees
One of the paradoxes in our country is that we tend to bargain for Rs. 10 with the vegetable vendor but don’t hesitate for one second to buy a vegetable salad for Rs. 300. Similarly, we tend to spend a lot of time and money to maximize a particular investment’s potential but want to avoid, at all costs, paying an advisory fee to experts. This can conceivably generate way more income for you.
The old saying, “penny wise and pound stupid” is apt for this bad investment habit. Don’t look at saving a few hundred rupees only to miss out on opportunities that could earn you thousands.
Falling victim to market noises
A common investment habit is falling victim to market noises. In other words, blindly basing your activities on information that can mislead or misrepresent underlying facts. A novice investor trades stocks based on market noises in order to make a quick buck. However, this is not a good strategy as it can lead to financial downswings.
A prudent investor, however, focuses on the fundamentals of the company and sector, and doesn’t pay much attention to market noises. Media sensationalism, in most cases, can cause you to panic and overreact. It is therefore important to ensure that you stay disconnected from misleading or unreliable information while making investment decisions.
Yes, debt denial is a habit and it’s important to break free from it to become a successful investor. In simple terms, this is a refusal to believe that there is a problem of debt in your life. Let’s face it; if you’re working against one of the strongest financial forces, compounding interest, it’s going to be an uphill battle to generate wealth. The first step to flipping the script of your finances is to honestly evaluate your situation and stop denying debt!
Rule of thumb; if you don’t have a plan on how you’re going to settle your debts, formulate a plan today! You can complement this habit by investing any additional money into financial assets such as stocks. The returns you reap from investing in the stock market can help offset the interest you’re losing out from repaying your debt.
Taking out a loan to invest
One of the more grievous sins of financial investments is taking out a loan to invest. There is an argument that you could take out a loan to invest if the investment yields more return than the interest you pay on the loan. Although this may make sense on paper, the fact is that some investments are risky. There is a possibility that you don’t make any returns on the investment, or even worse, you lose part of your investment.
What’s worse? It’s inconceivable to find a loan with interest rates lesser than a relatively safe investment. Even if you do find one, the difference between the returns and the interest is likely to be so minuscule that it would hardly be worth your efforts.
A few good habits performed regularly can change the course of your life. Be the hero of your life and regain control of your finances by slaying these 6 evil investment habits from your financial rituals.