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Avoid these 5 money mistakes most people struggle with

Investing and Saving are two different concepts related to each other but not really the same. And when it comes to investing, chances are you will make mistakes in the initial phases. So, here are top five that most struggle with and when avoided can make you wealthy.

Gone are the days when only secured instruments could give you the needed liquidity. While good old cash is the king, a balanced portfolio is slowly emerging as the queen as your money makes its movements. 

Investing and Saving are two different concepts related to each other but not really the same. And when it comes to investing, chances are you will make mistakes in the initial phases. So, here are top five that most struggle with and when avoided can make you wealthy.

1. Indecision

With a plethora of options for investing available out there, distraction is normal. However, letting your hard-earned money sit idle in your savings account is not assisting you with your investing goals. Your savings account gives you a rate of interest half of what a liquid mutual fund may offer. Liquid funds, and short-term debt funds, beat fixed deposit rates for most banks as well. 

2. Over-diversified or Ultra Concentrated portfolio

Over-diversification is a category of mistake that majority make. This means you either have invested a little in too many asset categories without a plan and hold everything in a small percentage. 

There is a possibility that there are some common themes that you may have invested in. For example, if you have invested in a variety of large / multi-cap schemes without a goal, there is a possibility that they may have at least few instruments in common. While diversification is important, over-diversification can complicate your portfolio. 

While the trend on ultra-concentrated portfolio is changing slowly, such a portfolio will not help you to get the best of multiple asset classes either. This could lead to overexposure to one particular asset class and the same hitting a slack period will adversely impact your portfolio.

If you know you are going to need a particular amount and have reached closer to it using equity, it is always good to shift the said amount to a debt portfolio to help balance things in case the market trends go southwards.

3. Investing without goal setting

Making impulsive investments without understanding long term impact can affect your portfolio adversely. For example, if you have an equity heavy portfolio and require money after a stipulated time period for a specific cause and the market is down you are stranded for liquidity as your portfolio value will be affected.  

If you know you are going to need a particular amount and have reached closer to it using equity, it is always good to shift the said amount to a debt portfolio to help balance things in case the market trends go southwards. 

4. Not including emergency funds in your portfolio

This will adversely impact your portfolio as all of your goals can get disrupted if emergency corpus is not built first. Without emergency funds, one risks their long-term investing objectives especially retirement corpus, which undergoes utilisation without realising the fact that retirement lifestyle can be seriously affected if these are not replaced.

5. Zero Review of portfolio strategy 

Re-visit your portfolio and goals at least twice in a year. You can also consider adding or modifying goals based on certain life-events. For example, if you have planned for solo retirement but are now married, then your retirement funds goal will undergo drastic revision. Birth of a child could possibly mean an increase in expenses and financial planning to secure the child’s future as well. So, make new goals as you progress, keeping existing investments intact. 

Topping up existing SIP investments particularly for retirement funds is a good idea. After all, a top up will certainly help you accumulate more units that will prove beneficial on the longer end. 

Avoid making these five mistakes and you too can have your financial house in order, no matter the circumstances.

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