New Year : New Beginning (Things to keep in mind/avoid common mistakes)

Podcast Duration: 08:59

Einstein ne bola tha “Insanity is doing the same thing over and over again and expecting different results.” Ji haan, naye saal mein let us avoid some of the silly mistakes we might have made with regards to our savings and investments in the past.

Actually dost, to be fair, I wouldn’t go so far as to call them investment mistakes so much as they are investment ideas that were not very wise. So what are these investment ideas or investment patterns that are unwise and what exactly makes them unwise?

Some examples of unwise investment ideas, ideals and patterns include:

1.Not investing

2.Opting for only one form of investment

3.Complete avoidance of risk

4.Not keeping a check on investments

5.Panic-rooted reactions

6.Sharmaji-ka-beta-prompted investments

These investment habits are unwise kyunki in se, earnings mein growth nahi hota hai; nahi toh, they might have enabled growth but not to the extent that was actually possible.

In some cases (jaise ki copy-pasting an investment plan from Sharmaji ka beta), you might have actually burned your fingers, maybe even experienced negative returns kyunki aapne investment galat time pe kiya - upward trend ke baad mein, for example.

Invest na karne se, ho sakta hai ki aapko ab tak koi negative experience mehsoos nahi hua hai kyuki iske ill-effects usually sirf crisis ya budhepan mein mehsoos hoti hai. Lekin, if you were among the unfortunate people who experienced a job loss or pay cut during the ongoing pandemic, and you had not been saving and investing in the past, you might have learned an unfortunate but very valuable lesson about the importance of saving.

Chaliye 2021 mein yeh 6 unwise investment moves ko kyun aur kaise avoid kare; yeh dekh lete hai. Ready for some finance-related New Year's resolutions?

New year’s resolution number 1 - Investing religiously and sufficiently Kam se kam 20% of your salary should go into your savings. Reality yeh hai ki you will earn till a certain age, aur us ke baad you will be entirely dependent on your savings and the interest from your savings. In addition, when a disaster like Covid-19 strikes bringing uncertainty along with it, job losses and pay cuts in some cases, it is your savings that will give you peace of mind if you are still employed and that will pay your bills if you have been unlucky with a job or monthly paychecks.

If you are in your thirties, you have seen the global recession of 2008, the shorter recessionary phases that occurred sporadically ever since and … well, 2020…. As you can imagine, this isn’t the last economic disaster of our lifetimes. Rather than being in denial, prepared rehna zyaada smart hai.

Har maheene invest karne se aapko rupee-cost averaging ka bhi benefit mil jati hai. Kai maheene mein market down rahega aur aapko same paise se mutual fund ya stock ke zyaada units ya shares mil jayega. Kai maheene mein market up rahega aur aapko woi paise se kam units ya shares mil jayega. Lekin end mein, average out ho jata hai.

New Year’s resolution number 2 - Always have a diversified portfolio Fixed deposits mein risk nahi rehta, lekin growth bhi kam rehta; there are various categories and types of mutual funds offering varying degrees of risk and the same goes for stocks. Other investment options include Futures and Options, not to mention gold that we as Indians are habituated to investing in. The idea is to have a whole lot of different types of investments and within each type of investment, many different investments. This approach means that your investments are spread fine and spread wide and are therefore more troublesome to keep a track of. However it means that you have a higher chance of earning (by the theory of probability) and it also means that if any one investment suffers, the loss suffered will be much lower. Apne poore capital ko ek jagah mein invest karne se, agar us company ya bank ya mutual fund mein koi problem raha, resulting in losses, phir aapka poora capital affect ho sakta hai. Avoid such a situation by using an investment advisor to help you evaluate your risk appetite and invest in multiple places, accordingly.

New year’s resolution number 3 - Acceptance of calculated, mitigated risk Of course we would rather put our hard-earned salary in only a risk-free investment. Lekin sacchh baat yeh hai ki potential risk and potential for growth are inversely proportional. Agar aap risk ko bilkul avoid karna chahte ho toh you have to settle for the measly 4% to 5% interest jo aapko fixed deposit pe mil jata hai. Lekin yeh smart nahi yeh kyuki inflation ka rate toh uss se zyaada hai, placed at about 7.66% last year… iska mathlab hai ki aap ka capital actually depreciate ho raha hai, not in absolute terms of course, lekin in terms of its worth and value. In order to have a diversified portfolio as discussed a few minutes ago, you will need to accept a certain amount of risk. Iss risk ko minimum rakh sakte ho. Aapke financial advisor aapke risk appetite ko dekh ke hi investments reccommend kar denge. What is risk appetite? It is the volume of risk that an individual can bear on the amount of capital leftover after maintaining his daily expenses and lifestyle.

Also keep in mind that if you invest in Rs 1000 each stock A, stock B and stock C and you make Rs 200 on stock A and stock B but experience a negative return of Rs 50 on stock C, it still tallies up to a good amount of earnings.

New year’s resolution number 4 - Periodically review your investments Evaluate at the performance of your investments on a monthly or bimonthly basis. Is baat mein aalsi rehna khatarnag hai dost.

A portion of the capital in underperforming investments can be diverted, or a new opportunity can be sought depending on what your finance advisor thinks might be good for your financial goals and risk appetite. Investments that have matured can be redeemed and re-invested in riper opportunities. Tax-saving investments that have completed their tenure can be moved to more lucrative investments.

It might be a good idea to pick a date - say the 5th of every month - or a day - like the first sunday of every month, to take a magnifying glass to your portfolio of investments.

New year’s resolution number 5 - Avoid panic-rooted reactions We touched upon under-performing investments in the last point and linked to that, it is imperative that investors understand that all stock-market-linked investments are sure to experience ups and downs. You and your investment advisor need to evaluate whether the current trough is actually a problem for you. Especially for long-term investors, knee-jerk reactions to stock price decline that comes as a result of something like the ongoing pandemic, is not usually a wise way to go. Just because everyone is dumping stock, it doesn’t mean that you need to do so too. Jab sab koi stock bech rahe hai, price bhi drop ho jata hai. Why sell at a low rate right away if you do not need the capital immediately? In all likelihood (although iska koi guarantee nahi hai) the price will climb again.

New year’s resolution number 6 - Avoid neighbourhood investment advice Especially when it comes to investments linked to the stock market, timing is everything. Someone might have made a killing by investing in a certain stock just last week. Maybe they bought a stock for just Rs 100 per share and today the price has more than doubled to Rs 220 per share due to some amazing announcement made by the company or due to whatever reason. You think to yourself; great I will buy at Rs 220 and soon the shares will be worth Rs 440 or Rs 500, right? Wrong! That could happen but it could also not happen. Just because a certain stock displayed a certain amount of growth at a given time, it does not mean that the growth spurt will continue or be repeated.

●Each stock investment or mutual fund investment must be made based on thorough research. Stocks mein invest karne se pehle, be sure to research the company, check out its financials and use technical indicators to evaluate its performance.

●Ussi tarah mutual funds mein invest karte samey, mutual fund ka alpha, beta, standard deviation aur sharpe ratio zaroor check karna.

●Agar aap gold mein invest karna chahte ho, check if now is actually a good time to buy gold - kya abhi iss commodity ka price kam hai, ya zyaada? Also check the costs involved in such an investment and compare it to expected earnings.

●Fixed deposit mein bhi invest karne se pehle, compare rates at different banks. If any one bank is offering an unnaturally high rate of interest, consider why they might be doing so. In investments what is usually too good to be true, is just that.

Toh dost, 2021 mein we are going to be diligent, careful and mindful of our investments. Bring on the new year kyuki hum toh ready hai!