With Diwali around the corner, it’s time to get down to spring cleaning your home. Why not take the time to clean up your investment portfolio and while you’re at it maybe think about ridding yourself of investment behaviour biases which do you more harm than good.
You may not realise it, but we all have some behavioural biases which stop us from objectively analysing what works best for our money.
Let’s begin with the simple biases and work our way to the rigid ones through the next year.
1. Believing you can always do it yourself
It’s simple to do it yourself today with the onset of digital investing. Right from mutual funds to fixed deposits and even opening your provident fund account can be done without any help. However, what you shouldn’t attempt is giving yourself investment advice.
If you have a day job that’s taking up most of your time, then its best to seek out help when it comes to researching the best investment solutions for your money matters. Even if you understand how market-linked investments and fixed deposits work, you should consider taking help in portfolio allocation to tide over your own biases of how much risk you should take.
Its good hygiene to be objective about where you invest based on your financial goals, to do that efficiently, taking help from a professional advisor is the best approach.
2. Holding on to bad decisions in hope of reversal
Investment mistakes happen. Sometimes we pick the wrong stock or invest in a property whose value just doesn’t pick up or rental income doesn’t come through. However, the sooner we admit these mistakes, the easier it is to reverse the outcome.
A bigger mistake is thinking that our choice was indeed the right one and it’s only a matter of time before the tide turns. The longer you wait for that, the more value you will lose. A bad quality investment doesn’t turn better with time. It's best to get out, even at a loss and use the proceeds to invest in a better opportunity.
3. Not reading the fine print
Product manufacturers focus on selling their financial products. It is your responsibility to make sure you don’t just fall for the sales pitch and also read the details of the product you are buying. Details of cost, risk, tax implication and expected return are most important to track.
Also, ensure that you know how long to remain invested for. In some products, this may be defined by a mandatory lock-in and in others by the nature of risk. Ideally, all this is showcased in the product’s information sheet or brochure. If the financial security you are investing in doesn’t come with this level of detail then, definitely don’t invest in it!
Make it your responsibility to know where you are investing rather than the sellers to tell you the details.
Behaviour biases can backfire in the long run and stop you from achieving the most efficient outcome with your money. Work actively at negating these biases and seek help where you need it.