Investing mistakes that cost time and money

Published: December 5, 2023 at 6:00 am

Here are some investing mistakes that cost time which is a more significant loss than money.

1 Trying to make up for lost time in a hurry: We often don’t seriously consider personal finance until we reach our early to mid-thirties. Once we begin, it’s easy to feel pressured to make up for lost time and assume that further time spent analysing our needs and developing an investment strategy will waste further time. Yet, having already spent years not planning, spending a few more weeks to identify our needs and the appropriate options won’t significantly impact our timeline. Conversely, a lack of planning could lead to additional mistakes. Remember, there’s no need to rush. As the saying goes in the military, slow is smooth and smooth is fast.

2 Lack of inertia. We frequently misunderstand that inertia only pertains to a state of inaction or stationary condition. However, it can also denote a continuous state of motion. In terms of personal finance, both inactivity and constant changes can be detrimental. Once they devise an initial strategy, many investors spend years adjusting it, swayed by each new product or opinion, assuming they must integrate it into their plan.

The basics of investing have not changed for centuries. Investors can take about three months to determine if they can do it alone or need help from a SEBI-registered fee-only advisor. Then they can take three months to do it themselves, search for a suitable advisor, and pay for a plan. A total investment strategy should be ready at the end of these six months. And once it is ready, inertia is essential. I value inertia after plan creation and execution as the most critical personal finance trait.

3 Process, first, products later: Most investors who want to invest in NFOs cannot define a need suitable for the product. Our investment strategy cannot depend on new products! And btw, “trust” in an AMC is a bit like credit risk. It is largely based on ignorance and naivete.

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4 Confusing simplistic with simplicity: Merely “covering the basics” such as life insurance, health insurance, a few SIPs, some EPF, PPF, US equity “exposure”, and a few tries at utilizing a goal calculator does not complete your task. Instead, these “basics” only bring us to the starting line, providing a departure point from our initial uncertainty.

We must delve into more “complex matters” such as asset allocation, rebalancing, matching investments with our needs, and product review. We should prioritize reviewing our investment strategy at a portfolio level. Yet, we often only discuss the returns of specific funds.

Avoiding these complexities is impossible. If we do, our simple plan will rapidly devolve into a simplistic one. More time is spent revisiting the same tired ideas about the “power of compounding”, the necessity of outpacing inflation, and the suitability of equity for long-term investments than the time wasted doing nothing.

5 Unable to overcome regret: Do we fear loss or bad decisions or the regret that would suffocate us due to these? I often wonder. Being emotional about logic and the big picture is the only way to fight regret. When I started and saw daily losses, I had to remind myself about the importance of financial freedom after retirement and that it is necessary to endure the pain of loss. We must devise a system to eliminate regret as soon as possible.

6 Forgetting everything is a cycle: I have seen people in AIFW say, “When liquid funds give me 9% return, why do I need anything else?” and then see the tune changed to, “But liquid funds are only giving 5-6% returns, how can I get more?”. Everything is cyclic. From long-term SIP returns in our friend equity to star ratings to interest rates to real estate returns, just about anything. If we judge something at the top of the cycle (e.g. gilt fund or gold returns), we will encounter the bottom and vice-versa after we invest. Everything is cyclic, but that does not mean we can define a frequency and know when to enter and exit. Tough luck!

7 Valuing commonsense more than data!  Someone says, buy at  X Nifty level and sell at Y level, or someone says the second Saturday is the best day for SIP, or a weekly SIP does more frequent “averaging”; we find it appealing. It sounds like commonsense, we tell ourselves. Practically none of these notions stand the test of rigorous backtesting. At the very least, they will not work all the time. No one knows whether they will work or not when we start investing.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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