How to avoid making investment blunders?

How to avoid making investment blunders?

by 5paisa Research Team Last Updated: Dec 10, 2022 - 06:22 pm 19.9k Views

We all make mistakes in our life. However, there are other blunders, such as financial mistakes, that may be extremely costly. So, in this post, we will learn how to prevent investment blunders. 

As humans, we all have behavioural biases. Optimism, confirmation, overconfidence, anchoring, and recency bias are examples of this. These behavioural biases frequently contribute to poor investment decisions.

This usually harms not just your investments but also your financial objectives. As a result, overcoming such prejudices is critical to avoid making investment blunders. Some of the ways to prevent investment blunders are described below.

Market noise

Instead of concentrating on their investing goals, the vast majority of individuals pay more attention to market noise. They rely on news channels for this information. Concentrating on market noise frequently leads to investors making impulsive decisions that result in losses. As a result, investors should avoid focusing on market noise. It is preferable to evaluate your investments on a quarterly basis.

Hire expert 

People nowadays favour DIY (Do It Yourself) investment owing to technological advancements. Although this method is less expensive in terms of costs, it frequently leads to investments in funds that do not match your risk tolerance or investment objectives. Hiring a professional financial advisor may frequently help you avoid these blunders. Financial advisers can also assist you in overcoming the behavioural biases that frequently contribute to such mistakes. 

Keep things simple

Simplicity always pays off in the long term, whether in life or investment. Not complicating your assets helps you not only save money but also reduces the possibility of over-diversification. People commonly believe that having 10-15 funds will allow them to earn more profits while taking on less risk. In reality, the opposite is true. As a result, keep your investments basic by investing in no more than five funds.

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