There are a few wrong way of thinking about Investment which
result in why individual investors
often fail miserably. It is good we know them and avoid
being one of such investors.
Here are six common fallacies about investment:
1. 'I AM TOO YOUNG TO
PLAN FOR RETIREMENT'
Have you started planning for your retirement? You may be
thinking: "Who, me? I am just 20 why
should I be thinking about retirement". It is not so. Rethink.
You should have rather started thinking
about it yesterday, because time flies quickly. If you were
smart and planned for retirement while
you were young, your retirement years will be really those
'golden years'. If not, you will need to
compromise and work for a longer period of time, retiring
later compared to others.
2. STOCK MARKETS CAN
YIELD QUICK MONEY
This is a another fallacy. Stock markets reward long- term
investors. In stock markets, money is
transferred from investors who are fearful and greedy to the
investors who are balanced and
rational. This is the simple truth. You need to be calm,
patient, disciplined and rational. You don't have to be smarter but more disciplined
than the rest.
3. FIXED DEPOSITS (FDS)
AND TREASURY BILLS(TBS) ARE THE SAFEST AND BEST
There is nothing wrong in investing in fixed deposit (FD) or
Treasury Bill (TB) . FDs are really safe and
give us fixed returns. But this does not mean that investing
all your money in FDs is a good idea. FD
will hardly beat inflation at the long run. And if your investments
are not beating the rate of inflation,
your money is losing its purchasing power. TBs and FDs are
safe but not always the best option.
4. I CAN NEVER BE AS
GOOD AS WARREN BUFFET SO WHY TRY?
lol...says who? In the words of Warren Buffet: "Success
in investing doesn't correlate with IQ once
you're above the level of 125. Once you have ordinary
intelligence, what you need is the
temperament to control the urges that get other people into
trouble in investing." You don't need a
super brain for making investment decisions. You only need
common sense and discipline. If you don't
have enough time and expertise, you can get assistance from
professionals. Also, investors often spend a lot of their time in trying to
figure out when the market is very low or high, to be able to time the purchase
and sale of investments accordingly. In other words, investors want to exit
when the market has reached its top and enter when the market has just reached
a bottom. This is not a practical idea because there are so many factors that
influence the markets. Predicting all the factors and making investments is
practically not possible. Instead, stay invested for a long term.
5. THERE IS NO SUCH
THING AS TOO MUCH DIVERSIFICATION
Diversification is needed but don't over diversify. Having
more than 20 stocks or investments can
dilute your returns. The reason behind this is you are not
only investing in best stocks or the best of
investments but also in average and above-average ones.
Therefore, your returns are likely to come
down. You need to rather concentrate on fewer investments. It
is possible to achieve the required
diversification with a few but solid Investments. Andrew
Carnegie said:"The wise man puts all his eggs in one basket and watches
the basket".
6. THE BEST WAY TO
MAKE MONEY IS INVESTING IN WHAT IS HOT
If you are investing in what is hot then you are following
the crowd. And if you follow the crowd, you
will get what others are getting, and not anything more. You
need to be fearful when others are greedy
and greedy when others are fearful. Don't go by the market
trend or the hot pick of the month. Instead,
think like a "contrarian" and follow value
investing. You will be an assured successful investor if you
could avoid these investment fallacies.
