New to investing? Avoiding this rookie mistake can make a big difference!

Published: June 26, 2020 at 11:34 am

Every year, tens of thousands of people start their careers and recognise the need to manage money. Yet another tens of thousands want to correct past mistakes and get their investments in order.  A group just as strong is getting ready for retirement. All of them are rookies or newbies. Here is one rookie mistake that everyone should avoid while starting or restarting money management.

The number one rookie mistake is not buying too many mutual funds or investing without a plan or buying products for tax saving without proper understanding. Those are outcomes. The root cause for all these is impatience.

Impatience is the number one rookie mistake. A sense of urgency, a feeling that doing nothing is wrong is typically the cause behind poor investment choices. It is this urgency to choose that makes us focus on products and not needs.

Look at how those getting ready to retire approach money management. The only question they ask is a generic, useless one like, “what are the investment options for a retired person?”. The impatience to “act” makes us want to get to the product stage as soon as possible without even the semblance of a plan. We shall say no more about older rookies other than that it is best they get unbiased commission-free advice from SEBI registered fee-only financial planners.

At least young earners who have realised the need to get rich or spend well forever have time on their side. They should not start investing until they can convince themselves with answers to:

  1. Why am I investing?
  2. Do I even need to save tax? Valid question with the new tax regime. At least for young earners, the obsession on section 80C can be eradicated. For older investors: New Tax Regime vs Old Tax Regime Calculator: Check which is better
  3. Where should I invest so that I can achieve my goal or at least stand a reasonable chance of doing so?
  4. How should I invest?

If these questions appear vague, then here is a specific checklist. Print this and check off each time: Download A Personal Finance Self-Evaluation Checklist

They can take up to a year to answer these and find solutions that would work for them. Seeking the best solution would be a year wasted. I can show you members of a certain forum who have wasted years trying to find the best solutions. Do not aspire for alchemy.

Even those who want to stick to the old tax-regime and lock up money in exchange for saving tax can/should take this “time off” and seek answers.  In the meantime, they can dump some money in EPF (via VPF) or NPS or start a PPF. The tax saving plan can be redrawn once the above questions are answered right.

The new tax regime is a blessing for the young earner about to start earning. Opting for this would eliminate truckloads of useless choices and lead to truly minimalist investing. Will people choose it is another matter: Netizens say no to the new tax regime: prefer deductions

In case you are wondering, what about term insurance, health insurance, emergency fund etc., yes those come first. You can take six months to get those and another 12 months searching for clarity about what your goal is, and how you should achieve it, what are the risks etc. This ebook would help you get started step-by-step: Download Re-assemble e-book on our 6th birthday

People who say, “I have just started my career, I do not have any goals., I just want to invest” suffer from acute impatience disorder and have clearly not looked hard enough. Hint: financial independence is a mandatory goal

“I have already made some mistakes due to impatience. How do I correct them?” Start here: A Step-By-Step Guide to Long Term Goal-Based Investing and here: Investing in mutual funds for beginners: Basic MF questions answered

Also read: Have you started multiple SIPs for small amounts? Correct this mistake now!

Trust the process. Your time is coming. Just do the work and the results will handle themselves. – Tony Gaskins

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps