5 Common Investment Mistakes You Should Avoid
- Exiting Winners early and sticking to Losers: Suppose I have a choice of riding in Two boats. Boat A is strong, consistent and has traveled the sea through many rough weathers. Boat B is fancier but shows some cracks and leaks on closer scrutiny. Which boat will I choose to safely get me from this shore to the next? I bet everybody would opt for Boat A and no person in his right mind would ever opt for Boat B. But in stocks or mutual funds, people will stick to losers (Boat B) in the hope that weaklings will somehow recover and exit winning stocks (Boat A) if they require any money. Get the flow?
- Investing for long term with short term view: A slow and steady approach to portfolio growth will yield greater returns in the long run. Expecting a portfolio to do something other than what it is designed to do is a recipe for disaster. This means you need to keep your expectations realistic with regard to the timeline for portfolio growth and returns.
- Buying on tips to make quick money: Technology has made our lives much easier but caused a lot of information overload as well. We get SMSes, emails and flyers with lucrative offers for buy and sell tips. However, countless investors have lost their life-time savings following such advice. Beware – please conduct your own study before acting on such suggestions.
- Not Understanding the Investments: Be cautious while investing in companies whose business models you don’t understand. The best way to avoid this is to build a diversified portfolio of mutual funds. If you do invest in individual stocks, make sure you thoroughly understand each company those stocks represent before you invest.
- Ignoring Risk in the investment and looking only at the returns: Risk is an integral part of every equity investment and some equity investments are riskier than others. When investing in a mutual fund, investors tend to focus on returns rather than taking into account the risks the fund manager has taken, like sector or stock concentrations. Prior to investing, it is crucial and almost mandatory to understand the risks associated with each investment.
How to Legally Pass on Your Assets to Your Heirs?
As per the Indian Succession Act, 1925, there are some ways by which you can bequeath your estate to your legal heirs smoothly. We give below a very broad guideline – of course, there is much more to each one of it and you need to go in for far more details if you decide to take any of these routes.
- Will: Making a will is the easiest way to bequeath your estate to your legal heirs or beneficiaries. It is applicable only after the death of the testator (ie, you).
- Mode of Holding or Nomination: If an asset is held jointly, after the demise of one person, the other person can provide relevant documents and can have legal authority over them. Even if the asset is held in a single name, it’s always preferable to have a nomination registered for easier transmission.
- Private Trust: A private trust can be the best option when someone wants to bequeath their extensive estate among legal heirs. Trust is always formed based for a specific purpose and can become active even within your lifetime if you want so. It also helps to reduce the tax liabilities on the settlor.
What if none of the above has been done by the demised person in his/her lifetime?
There are still some ways to solve the seemingly insurmountable problems.
- Letter of Administration: It is applicable when the owner of properties has died intestate (ie, without a Will) and the beneficiaries provide all the required documents that establish their rights – it is granted by the district judge or the registrar of the court subject to fulfilling the legalities.
- Succession certificate: It is the same as above when the owner of movable properties dies intestate and without a nomination.
Legal heir certificate: Applicable when the owner of the properties dies intestate and there is a need to apply for gratuity, pension, annuity, recovery of money, etc from a Govt department. It is issued by the Tehsildar.
(Contributed by Kritika Saini, Assistant Manager, Team Sukhoi, Hum Fauji Initiatives)
Why Monetization of Assets Is Necessary for a Good Life?
A large number of us have inherited properties – ancestral houses or lands – that we consider as physical assets but they’re more like emotional assets which we will almost never make use of to better our lifestyle or use even when a need arises. There are three primary reasons behind that:
- Firstly, those houses were built by our ancestors according to then prevalent style and their needs. Now when the needs and styles have changed, those buildings/houses are very tough to monetize, ie sell-off, except only due to the cost of their land.
- Secondly, there is an emotional block there – the land, building or such like an asset of the forefathers cannot be sold but has to be carried ahead even if it is really tough to do so.
- Thirdly, selling in rural areas is not very easy especially if the current owners have no emotional, social or physical connect in the local people those areas of if cartels exist to monopolize such sales.
So, what can be the solution for such situations?
- Assess objectively the use of such an asset to you. If it is to be kept for some reason, make changes according to your needs and circumstances.
- Never become a slave of your emotions. If your ancestral houses or lands do not make any financial sense to you, monetize them and invest in properties useful to you and your family.
- Property-to-property may, many-a times, not be the most optimal solution. Explore ‘financialisation’ options like investing the money received on sale of the properties into Mutual Funds, stocks, Corporate FDs, etc which make your life better by catering better to your goals.
Always remember, assets must work for our changing life situations. We own them, they should not own us.
(Contributed by Ayushi Gupta, Financial Planner, Team Arjun, Hum Fauji Initiatives)