The basic principal of finance is that saving your money is less rewarding than investing your money. When you try to save your money, your only aim is to put your money at one place without bothering about the return you get on your money. Whereas, when you are looking to invest your money, your aim is to put your money at places which gives you maximum return. Hence, investing your money is generally a long term concept.
However, many investors lose out there money due to wrong financial information and practices. Same is the case for small investors, since they are not investing huge sum of money and many a times, the investment they are making is the only extra funds that they have in their hands, they are largely dependent upon the growth of this investment which makes them take wrong financial decisions at times.
Let us discuss few financial mistakes that small investors make
Trying to build a lump sum for investing
Investment is not a onetime activity. Rather it is a continuous process which an investor should follow without worrying about the amount of investment made. If you are thinking to build a lump sum of Rs 50000 before investing, than it may take time for you to build up this much amount. On the other hand if you take an intelligent decision of investing Rs 5000 every month, than it will not be a tedious task for you and in a period of 10 months you will be able to invest Rs 50000 as well.
Priority to saving over investing
Some people are just not risk takers hence they try to put their money at secured places only. Savings products like Fixed Deposits and Recurring Deposits offer a degree of safety for your capital but gives low returns when compared to investment products such as Mutual Funds and Equity Linked Savings Schemes.
Even small investors should make their heart big and invest some amount in mutual funds and equity linked saving schemes. By making investment in such instruments, they will realize that they are able to earn more returns if the money is kept in the investment for a longer period of time.
Not reinvesting the invested funds on maturity
The most common mistake that the small investor make is not investing back the already invested fund on maturity, if there is a genuine need of fund at the time of maturity, than it’s ok but the problem starts where the small investor use the lump sum fund they get on maturity of their earlier investment in pampering themselves and their families. They don’t even realize that by doing this they doing more harm to themselves rather than gaining anything.
No change in the investment amount
Suppose you are a small time investor and you have just got a pay hike. What will you do? In most cases people will start spending more money, they will consider the pay hike as a medium to fulfill their desired wants which they were not able to fulfill earlier. But, if you will think as an investor than a hike in your income should result in a hike in your investment as well.
Showing panic at the time when the market is down
One more mistake that every small investor makes is showing the signs of panic at the time of downfall in the market. In such situations, the small investors make an exit from their investment at lower rates in order to protect themselves from further loss, but in return they end up making huge loss in the long run.