Most common investment mistakes to avoid

All investors make mistakes while investing in stocks and mutual funds, so if any investor claims that he has never made any mistake, he is definitely not an investor. A true investor first admits that he has committed a mistake, learns the desired lesson from his mistake so that he does not repeat the same mistake in future and then moves on to make more investments. Let us try to find out the common types of mistakes that investors commit and how to avoid them.

Lack of understanding: If an investor does not understand the product, he is likely to invest in a wrong product which may not be suitable for his needs and may not meet his expectations. For example, if an investor invests in an equity mutual fund for short term gains, he is bound to be disappointed as equity funds are for the long term.
Ignoring risk factors: If an investor does not know or understand the risk factors that his investment would be subject to, he may be in for a rude shock when the value of his investment depreciates over the short term.

Unplanned investment: Investing without a plan or a goal is akin to wandering aimlessly in wilderness without knowing the destination to be reached. Every investment has to be done based on a definitive plan or financial goal to be achieved within a given period of time. Investing without financial planning may result in arbitrary (insufficient or excess) allocation of funds due to which the desired result may not be achieved.

Early exit: Investors need to have patience and provide sufficient time for the investments to provide the desired rate of return. If an investor exits prematurely from the investment, the desired return may not be achieved.

Herd mentality: Investors tend to get carried away by the buzz in the market or the media or among the friend circle and make wrong choices while investing. The need is to do thorough research and exercise personal judgement before investing.