As a beginner in the share market, you learn from the trial and error process. While there are numerous things that can affect the returns you receive, a few errors remain constant, resulting in consequent losses. Such errors must be realized and stopped before it causes more loss.
There are a few mistakes that almost every beginner in share market makes and before these mistakes become a financial habit, you must cut them off. If the value of your money is deteriorating with every passing day, make sure you make a few changes in your investment decisions and make that money lucrative. Increase saving, decrease spending and avoid unnecessary debts is a mantra to have a comfortable financial experience. Here are five common mistakes that you can avoid and make a profit in share marketing.
- Skipping research before making an investment decision – Researching stocks before investing can sound like an intimidating task. Well, it is not as difficult as it looks if you follow a proper process. Moreover, skipping this step can cause you significant loss. To put it in simple words the key to conducting in-depth research about stocks you plan to invest in is to understand the knack of reading financial statements. Look for company-related documents and annual report of the company from which you plan to buy stocks and study them before investing. Make sure you keep a habit of following share market news live updates to track the happenings.
- Buying multiple stocks, funds to diversify – Risk spreading is important to reduce loss and for which diversification stands to be the most popular option. Experts advise that investing in 15 to 20 different sectors will spread the risk factor, thus minimizing the loss. But that’s the limit, and every investor must keep this in mind. Adding stocks beyond this limit won’t help in spreading risk as the market risks cannot be eliminated completely.
- Not foreseeing emergencies – As an investor in stock market, you must be ready to face any unforeseen expenses and financial contingencies. Save more and spend less is the key to be prepared for unforeseen emergencies. Rising lifestyle expenses and rapidly increasing spending avenues has made the younger generation forgetful about the necessities. Facilities like credit cards and mobile wallets have increased the spending ratio by providing an easy payment method. While these payment methods can provide convenience, it can turn into a debt trap with irresponsible use.
- Having tax-saving as the main purpose – Every year several people invest in insurance plans that they don’t need with a sole purpose of having tax benefit provided under Section 80C. Usually, people are attracted to buying insurance plan for the triple benefit purpose that is tax deduction at the time of investment, life cover and tax-free income on maturity. This becomes an opportunity for distributors to mis-sell the product. Hence, avoid buying insurance with the aim of saving tax.
- Withdrawing too early – A lot of beginner investors make a common mistake of withdrawing investments too early. When you invest in a good stock you need to wait for at least 3 to 5 years for the stocks to manifest into good returns.
There will be advice and misleading information going around related to investing in the share market. Remember to observe, track and learn from your mistakes as that will help you to succeed in the long run.