Reasons for losing money when you invest

The majority of the investors buy when the market has already run up and is valued expensively. This often leads to disappointment when the market either goes down or sideways for years. If you avoid doing what others do and invest regularly in top fund schemes, you can easily make money from your mutual fund investments

Naturally, when we burn our fingers, our first reaction is to shut the doors on that option. In investments too, we seldom look back to know why we lost money. Were we wrong, or were the markets? But in equity markets, or specifically, in a product like mutual funds, if the market was wrong, then why does it continue to have people investing and making money? Why is it that internationally, they are known to be proven vehicles to build long-term wealth?

Most of the times when a loss is incurred, the fault lies with investors and no one else. Here are a few obvious reasons  on why we lose money when we could have avoided it.

Not having a time frame to invest

How long you would like to keep the money invested is a very personal decision. It would depend on a host of factors like your saving goals, income, expenses and other investments. But, when investing for the long-term, it is always a good idea to invest systematically.

Not having a time frame compounds your errors. One, it makes you set wrong return expectations (like expecting double-digit returns in a short period); two, it pushes you to choose unsuitable products (choosing an equity fund for a one-year time frame) and three, it prompts you to exit at wrong times (panicking and exiting when markets are down soon after you invest).Having a goal naturally puts a time frame for your investments and helps you choose the right product in line with your time frame and return expectations.

Not knowing that trading and investing are different

Many investors start by saying they will stay ‘invested’ for the long term but they buy a fund hoping it will zoom right away; if it does not – they sell it. Then there are others who stop their SIPs when the market moves a bit one month, thinking that they should not be averaging at higher costs.

These are certainly not investing strategies and will also not fetch you money. They only delay the process of building wealth and often times harm your portfolio. Besides, products such as mutual funds are simply not built for ‘trading’.

If you are an investor, the only reason why you exit should be when you near your goal or your fund is really an underperformer vis-a-vis the market.

Not having a perspective on return expectations

“I got only 15 per cent on my mutual fund. I expected at least 25 per cent returns. I don’t want to invest more” is not an uncommon statement. So what are your other options for getting that 25 per cent return? Because there is no guarantee. But it is precisely for the risk that you take that you are rewarded far higher returns than the other options. Hence, you will do well to see how much you get over your other options or simply over inflation, rather than setting a number that perhaps has no basis.

Now, can you think of a stronger reason for losing money than not knowing the product you are investing in.

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