They say if your money doesn’t grow, you are doing something wrong. And this is why, today, we are seeing a major shift from just saving money to active investments. This shift, of course has been boosted by the awareness initiatives by the Mutual Fund Industry, IFAs, Distributors and financial influencers.
‘Investing is complicated and meant only for the rich’ is probably one of the most common myths going around for years. However, truth be told, investments are for everyone and don’t always need full financial knowledge or a degree.
It can be as complicated or as simple as you make it. You can also get professionals to help you build a portfolio that will work best for you and help you achieve your investment and other financial goals.
Before you start your investing, let’s bust some common investment misconceptions and myths
Here are some common misconceptions and myths around investing:
- Enter the market only at the right time.
One common myth is that you should only start investing only when the market is favourable. But, no one can guarantee when the market will perform. Of course, you can analyse and predict but even the most seasoned investors can’t tell you when is a good time to enter the market. So what should you do? Well, just enter!
What is important is the time invested in the market and not really the timing. Ideally, when you invest, you should be in it for the long run so there is capital appreciation and wealth creation
- Diversification, always
As much as we’d like to talk about the advantages of diversification, we also need to talk about a few cons that come with it. Sure, diversification can help protect your portfolio ensuring exposure across multiple asset classes but it can also limit your returns. There is a fine, blur line between diversification and over-diversification that should be kept in mind. Diversification can help you get optimal returns and reduce risks. However, over-diversifiaction served no real benefit.
that must be kept in mind so you can get optimum returns and still be able to reduce your risk.
Diversify your portfolio meaningfully into multiple asset classes. Though, there is no rule of thumb on where you can cut off diversification, investing in 3-4 asset classes (like equity, fixed income, hybrid, global funds etc.) and diversifying within them should do the trick.
- Risk is always bad
Calculated risk is the keyword when it comes to investing and risk management. No investment comes with no risk, and the mindset that high risk will give a high return is also not all that right. Truth be told, low-risk investments can give you decent returns too.
Investors today have started to understand the importance of risk-adjusted returns and evaluate their risk-taking capacity before they invest. Ideally, it should be looked as – what unit of risk is taken to generate a particular return.
- It’s all easy money
There is nothing like quick returns in the ever so volatile market. The best way to actually make money without risking it all is to invest in companies that have a long-standing reputation and can ensure returns over time. Putting your money in securities that appreciate exponentially in a short span of time can be a rather risky thing to do.
Quality investing drives to recognise opportunities in profitable and cash-generating businesses. Improved understanding of a business’ management and structure can help you correctly predict and analyse its performance in the future.
As an investor, you may not have the time to research multiple companies and invest so one investment avenue for you to consider can be Mutual Funds.
- You don’t need asset allocation
With a plethora of investment options at your disposal, choosing the one that can help you achieve your goals can be confusing. Just saving money can not secure your future; however, saving money the right way can.
To ensure the ultimate odds of meeting your goals, you must focus on ‘asset allocation’. Leaning on your risk appetite, investment objectives, age, etc. you need to decide the ratio of investments in equity, debt, hybrid and physical assets. Not only will it help us optimize returns but also minimize risk since different asset classes respond differently across market cycles.
- React to the markets
Every day, there is some news or the other but not all news is relevant to you. Constantly reacting to market news or up-and-down can endanger your returns. A single setback for a business can not set precedence for its future returns.
Reacting to news and investment decision based on that can hamper returns in more ways than one. When you are in it for the long run, you must understand how certain standard risks can affect your portfolio and make the required modifications in your strategy to protect it.
What is the most important thing is to take ownership of your investments and make informed decisions that are backed by research and financial understanding. You can explore the various form of investments like Digital Gold, Mutual Funds, and more on our platform.