Investment base issues

07/08/2021 0 By indiafreenotes

Bad Timing

Though the least common of these five challenges, some new investors go into the market right before a financial downfall. This has caused investors to lose money before making any! However, this risk can easily be mitigated by rupee-cost averaging, a strategy where you invest into the market bit by bit and mitigate larger fluctuations in the value in your portfolio over a long period.

Over-Diversification

This challenge is almost always self-inflicted. Many new investors feel they need to invest a bit in everything to shield themselves from risk. However, over-diversification can significantly stunt your portfolio’s growth. It is often best to pick 2-3 options to invest the majority of your portfolio in.

Unknown Risks

New investors may not know about the hidden risks in many seemingly simple investment strategies. This can cause their portfolios to take large hits early on in the process. To combat this pitfall, it’s important to be as informed as possible. Make sure to be familiar with the risks involved with margin, leverage, options, futures, etc., before considering them as an investment option.

Information Overload

Many people looking to get involved with the stock market google around to discover the basics and quickly find themselves overwhelmed by the sheer amount of seemingly complex and even contradictory advice on the internet. Luckily, many of the most reliable trading strategies used by successful investors are quite timeless. New investors may find it easier to avoid the noise and use books as a resource to get started.

Limited Capital

One of the biggest challenges that new investors face is having limited capital available to invest. This is only compounded when certain financial instruments are too expensive. However, these issues can often be solved by looking into “partial shares.”

Not Getting Help

It’s risky to start investing without any outside help. Especially when you’re getting started, you should be using some form of investment advising, whether it’s automated or live. This will give you added assurance that you’ll see a return on your money.

Roadmap

Portfolio diversification

Asset allocation and portfolio diversification go hand in hand. Portfolio diversification is the process of selecting a variety of investments within each asset class to help reduce investment risk. Diversification across asset classes may also help lessen the impact of major market swings on your portfolio.

Rupee-cost averaging

Rupee-cost averaging is a disciplined investment strategy that can help smooth out the effects of market fluctuations in your portfolio.

With this approach, you apply a specific Rupee amount toward the purchase of stocks, bonds and/or mutual funds on a regular basis. As a result, you purchase more shares when prices are low and fewer shares when prices are high. Over time, the average cost of your shares will usually be lower than the average price of those shares. And because this strategy is systematic, it can help you avoid making emotional investment decisions.

Asset allocation

Appropriate asset allocation refers to the way you weight the investments in your portfolio to try to meet a specific objective and it may be the single most important factor in the success of your portfolio.

For instance, if your goal is to pursue growth, and you’re willing to take on market risk to reach that goal, you may decide to place as much as 80% of your assets in stocks and as little as 20% in bonds. Before you decide how you’ll divide the asset classes in your portfolio, make sure you know your investment timeframe and the possible risks and rewards of each asset class.

Pay off high interest credit card debt.

There is no investment strategy anywhere that pays off as well as, or with less risk than, merely paying off all high interest debt you may have. If you owe money on high interest credit cards, the wisest thing you can do under any market conditions is to pay off the balance in full as quickly as possible.

Create and maintain an emergency fund.

Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.