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BELOW is the list of common mistakes happening with investment portfolio with most of the beginner investors Some careful action is helpful to avoid such mistakes to make your investment portfolios better and safe. Find out the most frequently happening mistakes and its possible solution with this article.
Mistake #1: Choosing an asset class considering the recent performance rather than considering the average return of the asset class at least for last three years.
Solution: Best examples for this are: When IT sector was booming, each and every investor was investing on the IT company stocks. Some of the investors were borrowing money to invest on such stocks to get great returns. After some time, the IT sector start sinking before completely flat, all these investors lost entire money along with that.
At present, market is filling with the IPO’s from Real Estate Companies. This sector seems a fast booming one and prudence required from investors side before investing on such sector stocks. There are no great fundamentals for such companies and that can lead to a complete lose once the booming is over and stock prices are coming down. Care should be taken to avoid huge lose with such sectors. Think carefully before investing on any companies that is in a recent booming sector or has very good recent performance rather than a consistent long term performance.
Mistake #2: Percentage of allocation in the portfolio is not constant.
Solution: A good portfolio should have right mix of various investment instruments in the proper proportion. Also, a good investment portfolio required timely balancing depends on the changes in the capital market and economic situations.
Mistake #3: Selecting a flat portfolio by not considering your goals.
Solution: Have required goals before creating an investment portfolio. Consider to build a portfolio by including various asset classed that suitable to meet your short, mid and long term goals.
Mistake #4: Including asset classes by NOT considering the risks associated with that.
Solution: Imagine what will happen if a portfolio has only small cap or penny stocks? Certainly he is going to meet great lose. When considering the asset class to your portfolio, you should take care on the risk associated with each one. For example, Government supported bonds has very low risks compare with high risky investment instruments like equity or commodities. Your portfolio should have proper allocation for each investment that is falling to various risk classes.
Mistake #5: Not considering the Investment Rule of thumb when creating portfolio.
Solution: When you are in young age, you can add high risky investment instrument in your portfolio e.g. Stocks. Even if there is a lose, you have time to save money. If you are aged and near to the pension, major part of investments should be with less risky debt instrument. E.g. Fixed Deposit, Government bonds etc.
Mistake #6: Over diversification of portfolio can bring lose instead of profit
Solution: A clear investment strategy on the fixed goal required to understand and select proper investment instrument to your portfolio. A good portfolio should be away from the most common mistake of over diversification. In the word of legend investor Warren Buffet, if you don’t know what you are doing, then over diversification is good. A well mix of asset class selection only happen when the investment goal is well clear. So have an investment goal before committing to build an investment portfolio.
Mistake #7: Regular churning of the portfolio
Solution: Regular churning in a portfolio forming the investor to a trader. Regular and continuous churning was the best example for lack of preparation before buying an investment instrument without any goals. It is also the best example to understand the investor should not have the required patience, a quality each investor should have. Avoid churning of portfolio time to time. Instead, invest in any asset class by researching about them properly and keep for long term to yield best profit from it.
Avoid all the above mentioned mistakes to be a disciplined, prudent and intelligent investor. Have a clear goal and well defined investment strategy to achieve great success. Best wishes to all of you.