Investing majorly in Bank FDs & typical insurance policies:
Though we Indians have upgraded our phones and lifestyle in a big way in the past few decades but when it comes to investing money, our pattern is still very old fashioned. The trend is changing but at a snail pace. Still most of the savings we make are parked in to fixed deposits (FD) or traditional insurance policies which hardly generates a return of 5% to 6.5%. On FDs you end up paying huge tax and so your post tax returns are very less. Apart these, there are people who keep getting money accumulated in their savings account, so its high time to upgrade investments.
Love for real estate:
You always need one house to stay in and beyond that whatever investments you want to make in property should be purely to make money. Real estate has always given positive returns but what we fail to realize is that even this has crashed in the market big time earlier. Calculate the compounded annual growth rate of property returns and you will see it is totally opposite to contrary perception. Do build your dream house but beyond that be careful with your real estate strategy.
Not following a well thought financial plan:
It is very natural that financial planning always takes a backseat since there is a huge pressure on majority Indians to manage their family due to high costs and the ever-increasing job or business pressure. These also leads to hasty wrong decisions. Start creating a well thought financial plan suiting your lifestyle and with aim to meet your financial goals in time.
Investing in Gold:
Gold buying has been always considered as a safe haven investment in our country for generations. You should invest in gold but it should not cross more than 10% of your overall portfolio and given the current scenario you can stay from it for some time as it has not given any returns in the last three years. The returns of gold post inflation is hardly anything.
Less risk averse versus good risk appetite:
As it has been said famously that the biggest risk you take in your life is not to take a risk at all, same goes for us when it comes to managing our money. It is somewhat easy to understand that nobody wants to lose their money but if you don’t take calculated risk with your investments, you will never be able to beat inflation and will see difficulty to create good wealth.
Aiming to time the stock market:
Only two people can tell you where the stock market will go, one is the almighty God and the other one is a liar. Honestly, no one can predict the market. There are huge expectation mis-matchs. Stock market cannot make you super rich or hit a jackpot unless you get in to it as a full-time business of managing wealth for yourself. But then for doing that also, you need some good amount of money to start off. My advice to most people is always invest in a mutual fund and use SIPs route, you can easily get a decent return of say 15%, if you play your cards well. Just pick up a good mutual funds scheme suiting to your financial goals, monitor it regularly and leave it for a long-term period, you will never go wrong.
DO IT SIP BY SIP
- In fixed deposits, one end up paying huge tax, hence post tax returns are less
- By investing in an MF and using SIPs route, a decent return of say 15% can be expected
The writer is a chartered accountant and chief gardener of Money Plant Consultancy