Are you the cool ’90s kid who thinks they have received the best of both worlds?
We’re sure you have some fantastic stories to share that the Gen-Y kids can’t even think of. But in this article, you will learn about the specific mistakes kids the 90’s kids made. To set up the corrective perspective at the beginning of the article, most people make many common investing mistakes in starting in the investing ecosystem.
This knowledge can provide the user a competitive advantage over other investors who commit naive mistakes in investing. In addition, it goes a long way in learning how to invest.
Here’s an example. Enthusiastic about and attracted to the stock market, mutual funds, investments, and all the glamour associated with it, a 90’s kid started to invest a small sum of money.
Unaware of all the market technicalities, oblivious to the probability of potential loss of corpus, and only pulled by the hope of sheer profits, he made some prevalent mistakes that many investors have already made in the past and will keep making in the future.
One of the most common mistakes young investors, especially the kids of the 90s, make is taking free advice from anyone who says there is a possibility of making money.
Yes, that’s true.
Other common mistakes are investing randomly without any goal in mind, investing without thorough research, and not having the patience to remain invested for the long term with many more.
Some of the common investing mistakes which so many investors have made numerous times are-
One of the most important aspects of investing, which every investor must always bear in mind, is to have an investment objective. A well-defined investment objective is one of the prerequisites of a successful investment. First and foremost, it helps to focus on and select the correct investment mode.
For example, an investment in a small-cap fund could be a good idea for someone who wants to set up a retirement corpus and is starting to invest early in their career.
However, an investment in debt mutual funds could be a better option for another investor who is only investing to earn more returns than a regular FD and does not want to take too high a risk.
In the second case, an investment in a small-cap mutual fund could be hazardous and, therefore, over the risk appetite of the concerned investor.
Therefore, the investment objective is at the top-most level of the investment process, and any investment-related decision revolves around the aim of investment.
Many young investors, including me, missed out on this crucial aspect invested without any particular goal or time frame in mind
Since investing was not a colossal phenomenon as it is today, many of the 90s kids made this mistake. As soon as the market became volatile, they would withdraw their money. Rightly said, patience is a virtue, especially in investments.
Here’s an example to understand the same:
Mr. A had invested in the security with a relatively medium to long-term view, knowing that the guard was volatile but had a good return potential. This particular investment started well, with decent returns day-on-day for the first few days, and he was happy with my decision to invest in this particular security.
However, this happiness was relatively short-lived as the stock price began to fall. It didn’t stop, and the downfall continued for a few days straight. At a point in time, the cost of the concerned stock was below his purchase price.
The stock continued to be volatile, moving up and down around my purchase price. Then for a few days straight, the price fell to a point wherein he had 15% negative returns on his investment. So, thinking of damage control, he sold the security much before my decided investment time frame.
Fast forward a couple of years in the future, one day, upon thinking of this particular investment, he checked the price of the concerned security. And, of course, if he had held on to the security until the decided investment time frame, it would have yielded me almost 3x returns. This return would have been even more than the expected return at the time of investing.
The lesson that should be learned from this episode of investment is that one should be disciplined while investing and exercise patience, especially during periods of low returns. It is very natural and expected for emotions to take over when things do not go as we had planned.
Suppose you have been trying to follow this trick. Stop it right now. Nobody, absolutely nobody, can time the market!
Many investors have made this common investing mistake. To put things to a comparative aspect, timing the market to make huge returns is something in which even many experts have failed. One of the most important things to realize is whether one is a trader or an investor.
All investors must note that an investment is a long-term game of discipline and patience. Investors do thorough research and make an investment call according to their risk appetite, investment objective, and time frame. Unlike an investor, a trader usually invests in the short term.
The purpose is to time the market to benefit from the price fluctuations of the concerned security. However, realizing that any attempt to time the market is risky and may result in huge losses is essential.
It is a high-risk- high-return game, not suited for everyone.
In cricket parlance, investment is a test match to be played with patience, not a T20 game. Therefore, investors must stick to the decided investment time frame and not attempt to time the market.
Markets have forever been volatile and will continue to do so. All young investors easily get lured by the prospect of making a quick buck. However, it is expected that most investors will make losses while attempting to do so.
Investors must understand that volatility arises as the markets could be irrational in the short term. However, as when time passes, the irrationality gets ironed out, and securities reflect the actual price and deliver returns.
An investor should not attempt to time the market. Sustainable gains are, in most cases, made in long-term investments.
To stress the importance of this aspect in any investment, ‘Do not put all your eggs in one basket.’
Diversification is of utmost importance for any investment portfolio. Unfortunately, many investors invest a significant portion of their corpus in only one or two securities without diversifying. The problem with this type of investment is that if a particular security falls excessively, the entire portfolio fails. Therefore, an investor should hedge his risk by investing in diversified securities. This will ensure that adverse events in one security will not risk the entire portfolio.
It is advisable to invest one’s funds in a good mix of equity and debt funds. However, where equity funds provide the scope of good returns, they also come with inherent risks of loss. This is complemented by debt funds, which are less risky and stabilize the total capital invested.
An excellent example of a case in point could be an investor who invested all of his corpus in bitcoin. This investor would have made astronomical money when the bitcoin was soaring new heights day after day to reach its lifetime high in a few months. However, the same investor would have probably lost almost half of his total invested capital in an equally short amount of time when the bitcoin prices fell.
Such a situation is not at all desirable. All investors value stability in earnings, and diversification facilitates this stability.
Many kids of the 90’s who enter into the world of investing with a lot of confidence and a positive attitude make this common mistake. Filled with energy and a desire to profit in the industry, some investors act on other people’s advice.
The problem with this research is that an investment without a thorough self-research solely based on another person’s advice could be hazardous and counter-productive.
The investment comes with its own set of risks. Investing is an art that can only be mastered through years of experience. Kids of the 90’s who are mostly beginning their investing life or are at the early learning stage make some common mistakes.
By keeping these common mistakes in mind and being careful not to repeat them, investors could have a good start on their investments.
Financial planning, such as consulting an expert, making and adhering to a financial budget, subscribing to an insurance plan, and teaching the habit of savings, are a few must-have habits.
Each investor must access the risk-return trade-off before investing in any security. The ideal way to go about an investment is through self-study and gaining a conviction.
SIP or Systematic Investment Plan is a perfect investment option for millennial investors, as it provides the benefits of rupee cost averaging and compounding from disciplined long-term investing.
Moreover, the minimum investment amount is meager, encouraging small investors with little disposable income to participate in this investment process.
It is convenient as the amount of SIP installment is automatically deducted from the investor's bank account via the Electronic Clearing System. With the potential to create long-term capital, SIP is attracting attention and gaining tremendous traction.