Here are the top 15 reasons why people face investment failures. These are well researched common reasons, avoidable by little study and planning to enlighten knowledge for smart investing.
1. Lack of knowledge - lack of investment knowledge easily lead a person to the bad practice of following the public and taking advises from wrong personnel or investing through believing reports from stock analysts and tipsters. Finally he will face total investment failure.
2. No Goal – A clear vision or goal should be the backbone of activities like investing. Setting perfect goal helps to have proper planning that lead to right investments. absence of the same, lead one to irresponsible and cause huge money lose.
3. No Risk awareness – It is not advisable for a person to invest directly to stocks if his risk taking capacity is less. If such people investing to stocks, fear or panic lead them to take wrong decisions like selling at wrong price.
4. Lack of patience and discipline – Patience and discipline is the two most required qualities of any investor. Lack of any, lead to investment failure. You can refer point 3 above, totally related with this.
5. Identification of investments – Have a look at point 2. As an investor, identification of right instruments have ultimate importance. It depends on various factors like risk profile, goal, financial status of an investor. For an example, if you invest on equities to meet a short term goal within 1 year, your investment give you huge failure.
6. No having a right adviser – Approaching a qualified and experienced financial planner is a right move by beginner investor till getting required knowledge and thus confidence for invest self. A good adviser can help investors to not commit big mistake that may possible if someone doing the investment as self. With little knowledge, entering to the stock investments lead people to huge failures.
7. Overconfidence – Remember, even legend investors lost money by mistakes. No one is perfect by making money by not committing any mistakes. whoever thinking of not make any mistakes, have more chance to lose money than any ordinary investor. Overconfidence is dangerous for an investor.
8. Being a trader – Short term trading is a kind of gambling than investing. Luck is ultimate with trading activities. Casinos are the better place to visit than doing trading activities with stock markets.
9. Improper balance of portfolio – Portfolio balance should be done time to time by considering age, financial positions, risk factors etc. Getting advice from right financial planners will do better for such. Lack of proper mix can lead to huge lose of money or less profit than what planned. For example, if a person near to the retirement age holding a portfolio that have major chunk of equity investments, putting himself to hell.
10. Less diversified portfolio – Any portfolio with total focus to a particular sector or company may face huge failure. This can happen when the sector growth stopping or the company face internals problems. For example, if a portfolio focused to only large cap stocks or focused to the stocks of the companies from a particular sector have chance of failure compare with a portfolio diversified with large, small, mid cap stocks or invested across multiple sectors.
11. Over diversification – similar to point 10, over diversification presenting an uncontrollable portfolio to a person. With an over diversified portfolio, there are possibilities of missing great investments. For an example, A port folio have more number of excellent company stocks but very small number of each,really missing the chance of getting huge profit compare with a portfolio that have less excellent companies with considerable number of stocks.
12. Concentrating to return – Such behavior is the most dangerous to lose money by investing on any product by aiming its possible return by short term and not considering the risks. Such behavior and related heavy lose happened when the internet stocks start booming. People invested their each and every penny to such such stocks by not considering the risks associated with them. Finally, they lost everything by the crash of such stocks.
13. Being aggressive – Aggressive people never think about the bad side of any action. Being more aggressive always put a person in trouble by taking wrong decisions. An example, buying a stock by seeing its booming nature and not considering the right price. I have mentioned the same in Point 12.
14. Lack of monitoring – Yes, stock investments are for long term and may no need to monitor time to time. But, there should be another asset classes in the portfolio to leverage the profit and that may required monitoring in time. For an example, mutual funds required monitoring time to time to identify the performance of the fund as well as the fund manager. Or such investment lead to money lose.
15. Finally, no time for research – An investor who investing on a product by not having all the required knowledge, simply putting his money to something to lose heavily. Ignorance always cost a person in two ways. First, without having knowledge, a person may not bet able to identify the real potential of the instrument and which lead him to not having right percentage of the same. Second, he may not able to identify the risk associated with the instrument and that may lead him to huge lose in the future.
Here’s some thoughts on the real estate market: