As a young investor or any investor, we have given below a quick list of the moneytraps to avoid:
1. Delaying saving for retirement
You may start small, but start early. Let the power of compounding do its magic in later years to build great wealth.
2. Skipping creating an Emergency Fund.
It provides cash to tide over emergencies (such as a job loss) and helps you survive and deal with situations without stress.
3. Living beyond your income
Don’t spend more than you earn, whether on credit cards or EMIs. Pay your card bills in full each month. Credit card loans are way more expensive than personal loans.
4. Taking a short view on investing
Invest for the long term. Be patient and don’t get influenced by the ups and downs of the market in the meantime. The # 1 skill in investing is patience. It’s not about the highest returns, since these are one offs; it’s about good returns repeated for the longest period of time where compounding can do its magic.
5. Investing a lot in Fixed Deposits and Gold
We don’t like Fixed Deposits. You can get better returns with Debt Mutual Funds without a great increase in risk. Also don’t overly invest in gold. Jewellery is not an investment. Gold investment up to 5% of your total assets should be fine.
6. Avoiding equities
Equities are your best bet to beat inflation. If you invest for the long term and don’t panic in the interim, equities are relatively safe and will give good returns. Invest through mutual funds* and let professionals manage your money.
7. Concentrating your investments
Diversify your investments. It’s easy to do with mutual funds. Propel’s financial plan advises you with how exactly to diversify.
8. Buying money back insurance policies
Go instead for a plain vanilla term life insurance policy. It’s cheaper. Use the money saved to invest in mutual funds instead. It will give you more flexibility with your cash and better returns. Cash back policies are only for those who lack complete discipline to save and invest. Don’t be that person to begin with.
9. Getting lured by high return offers and exclusive information
Wherever these returns may come from, whether a co-operative bank or fixed deposits or a friend’s/relative’s business. Same goes for “super” information. Don’t get FOMO. The risk and stress is just not worth it. Keep your life simple so that you can focus on other important things.
Our note on How to Save More.