Investment Mistakes that can be avoided in 2013

Investment Mistakes that can be avoided in 2013

2013 is filled with host of new investment option and opportunities. Amid huge financial reforms and new investment avenues, there are possible chances that investors end up investing in wrong instruments. 

Year 2012 was good for retail investors from many aspects. Not only there was push to huge financial reforms focusing entirely on consumer interest, but there were host of new investment options like tax free bonds, infrastructure bonds, NCDs and now RGESS. With most of these expected to continue, year 2013 is surely going to provide good avenues for small investors.

 

But any investment option cannot fit every investor's requirement and so mistakes do happen when there are so many. It's wiser to analyze and then take a decision to ensure there is no dissatisfaction later.

 

Here are few of such mistakes which should be avoided by investors in Year 2013-

 

1. Review & Review- Still there is a tendency to invest and forget till the time of goal is reached. The regular monitoring is necessary to identify any underperformance and a discipline in your investments can do a lot in enhancing the outcome of your investment portfolio. A review can be done quarterly, half yearly or annually based on the goal of your investments. If you didn't implement it this year, then ensure your 2013 starts with making a periodic review calendar.

 

2. Evaluate The Options: There were infrastructure bonds for Sec 80CCF benefits and tax free bonds in last financial year. Since some of them were in the market during the last few months and the structures of these bonds were similar, many investors got confused. They wrongly invested in tax free bonds to avail the tax deduction benefits. Even in the tax free bonds, the attraction of tax free interest was the deciding factor for investments. Same goes with NCDs where the higher interest became the major attraction and the risk was completely ignored. The tax free bonds are again in the market and will continue next year. Evaluate such options on various parameters and then match with your requirements to see whether it actually fulfills your need.

 

3. Do Not Make Sector Your First Investment- While investing in Equities through mutual funds, most small investors make a mistake by selecting a sectoral or thematic fund as their first investment. Probably, they get attracted to the high returns it may have produce in the past but fail to understand the inherent risk. The creation of any investment portfolio should start with diversified funds or balanced kind of funds which have good downside protection along with ability to produce consistent returns. The risk in your portfolio keep on increasing as you add funds like mid-cap or sectoral funds. Hence, high risk investment options can be added but only when you have understood the dynamic of the market you are investing. Thus, for new investors who will start in 2013 its wiser to start with basic approach of asset allocation even within equity investments.

 

4. Invest for Inflation: It's there in the news everywhere but when it comes to investing we ignore it. Mostly retired or while planning for children’s, people search for products which can give them defined income. But, Inflation eats out your income in the long term and so your requirement keeps on increasing. Along with fixed income a growth is necessary to minimize the impact of inflation. So when investing for long term or for regular income needs, do check what you will receive after counting for inflation.

 

5. Do Not Invest Only For Low Charges: Low cost is viable but not the only criteria for investment. A low cost does not guarantee a fund performance and you cannot identify in advance which fund is going to be the best. There have been much reforms related to cost in either mutual funds, insurance or pension products like NPS in 2012. In 2013 you will be presented with more low cost options. Choose yours but do not rest your decision only on it and monitor the performance of the fund too.

 

6. Start Paying For Advise: Free advice has been the back bone of misselling. The dependability of advisor on commission from the product manufacturer has led to avoid consumer interest in the past. There are many financial planners now-Individually or Firms, who do charge for their services but keep their client interest on priority. Their focus is not on one aspect but a complete roadmap for their client's future. If you have been facing difficulty in getting the right advice for your investments start paying for it from the next year.

 

New Year celebrations are on the way now. With so much changes happening in personal finance worldwide, you cannot miss making "Money Management" a part of your new year resolutions. But ensure you learn and avoid repeating investment mistakes.