Avoid making mistakes while investing - Advices HDFC Bank

Each one of us can win in the investing world if we focus on some basics and implement them diligently. It is important that you know what is important about money to you. Money is a means to an end and not an end in itself. Know what your values are about money. When you know what your values are, decision-making becomes far easier and focusing on your values can motivate you to achieve. When you ask people what their values are, a common answer is 'Security of their family', but yet when it comes to ensuring that you have done something in that area, people end up buying a Rs 5 -10 Lakh insurance policies as if this amount were to last a lifetime. A rough estimate, around 95 % of the people in India might be underinsured.
Concentrate on what returns you need to achieve your goals as this can help you to stay away from risk that is unnecessary. People often look at returns ignoring the risk component. Most of us want an investment with high returns and no risk or less risk. Investors tend to focus only on returns when investing in stocks and mutual funds.
While investing look at the following:
a. What kind of stocks is this fund invested in? b. Is this concentrated in a few stocks or few sectors? c. What is the Standard Deviation and Beta?
Asset Allocation is the most important decision that an investor must make to achieve his financial goals and effectively manage risk. This means you need to focus on what percentage of your money should go into Equity, Debt, Real Estate, Gold and Cash. A number of studies have shown that a portfolio’s asset strategy is the driving force behind portfolio performance and that over a period of time, it accounts for more than 90% of the variation in overall returns. In India there is an under ownership of equity and hence most of the portfolios are skewed towards Cash & Debt (RBI Bonds, Post Office Schemes, & Endowment Plans from LIC) or Real Estate (due to the ticket size) and Gold.
Every portfolio must have an exposure to equity to maintain purchasing power. Every equity portfolio should comprise essentially of rock steady large cap stocks. At the same time it could be helpful to have midcap stock, a stock, which has potential to become a large cap. Midcaps can provide that extra punch when the aggressive streak is needed.
One of the biggest mistakes that people commit is in their selection of insurance products. People spend Rs 20000 or more for their car insurance for a cover of 6-7 lakhs but when it comes to insuring their lives for around Rs 40 Lakhs-50 Lakhs for the same premium, they prefer an investment policy to a pure term plan on the pretext that “I will not get anything back if nothing happens to me”. Most of the endowment products cost you around 30-40%, which is reflected in the returns that you receive. Some other critical mistakes include, not recognizing the impact inflation has on one’s wealth, thinking that you can time the markets, delay in making a Will, and not having a written Investment Strategy and Plan.
You must do the right thing to get results and achieve goals while staying away from stupid and costly mistakes.
Thanks : HDFC Bank


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