Investment Tips

Before investing anything consider the following investment tips.

Getting greedy; Just think of the number of times you haggle to get the 12 per cent commissions that a broker passes on to you on the financial products he sells to you. Think of how little you have thought of how safe the investment is and if your principal or original investment is at risk. Or when you have made a killing in a share that has jumped up 40 so percent in a month, and you assume there is no law of gravity applicable to markets.

Well the law of gravity applies to the stock markets just as well and they could fall like a rock taking your principal with them.

Investing while you are in debt; Most consumer debt is at interest rates as high as 18 -20 per cent. There are very few investments that would produce a return of 24 per cent (you will need that kind of return to match a loan at 20 percent interest since investments are taxed) and even if they do exist, they would be risky and there is a very good chance that you could end up losing all or part of your principal amount.

Buying investment products you don't understand: If you don't understand what you are investing in, chances are it's not the right product for you. No matter who recommends the investment, make sure you understand the investment product and the associated risks. Simple as the statement sounds, most of us think investing our money is someone else's business and rely on advice from others.

Don't understand stocks but would like to make big bucks quickly like your friend? Well, don't worry, the Bombay Stock Exchange has been around for a hundred years and unless India becomes a communist state, I don't see why it should not continue for the next hundred years. So take your time, read up the sections on stocks, understand the risks and the rewards, research the share you like and when you feel reasonably confident of your abilities put your money where your mouth is.

Falling for a sales pitch; Companies that splash the media with advertisements on financial products usually offer the worst investment products. Brokers and agents selling everything from IPOs to company fixed deposits often give you misleading or false information on the returns, safety and liquidity of the investments they are offering. But then, it's a sales pitch and it may not reflect the investment's real potential or risk. Cross check the information with independent sources and trusted financial magazines.

Disregarding the risks; Stocks are risky, bank accounts are safe. That's how we perceive risk. But risk is relative and depends on what you are saving for. If you are twenty and saving for retirement after forty years, shares and equity mutual funds seem like a safe bet. Even though they gyrate wildly from time to time, in the last forty years, they have outperformed any investment product you can think of. Disregarding tax implications of your investment decisions our tax laws allow you some of the best tax benefits on investments available anywhere in the world. No tax on dividends from stocks and mutual funds and a complete exemption from capital gains if you reinvest funds in certain mutual funds for three years or seven years are some of the ways you can significantly increase your returns.

Investing without a goal; This could be the single biggest mistake you make. Haphazard investing without a plan or goal in mind is a surefire way to pick investments that would not fit your investment style, your risk taking ability or would not allow you to sell them when you need the funds.

Parking your funds in one or two investments; By putting all your money in one or two investments you multiply your risk of either losing your original investment or seeing the value of your investments plunge. This is the most common mistake investors make.