15 Reasons for Investment Failure
Here are top 15 reasons for investment failure. Why most investors are failing? Yes, there would be certain reason behind the failure. In this article, you can find 15 well researched points behind investment failures.
1. Lack of knowledge
Lack of investment knowledge lead a person to take improper investment actions. Some of the results of this error will be, investing as per other people, following the public, taking advise from wrong personnel, investing as per hot tips and analyst reports etc..
2. No Goal
Investment should start with a clear vision and goal. A goal is the backbone of investing activities. Setting perfect goals help to identify investment time line, proper asset allocation with proper investment instruments etc. Absence of the goal, lead investors to huge money lose.
3. No risk awareness
Investors must know their risk taking capacity before committing any investments. It is mandatory to select the right investments to their portfolio. Here you can find a beautiful article on different risk profiles and recommended investments for each.
4. Lack of patience and discipline
Patience and discipline is the two most required qualities to any investor. Lack of any, lead to investment failure. Patience is the best quality that every investor must learn before start investing.
5. Selection of investment products
As an investor, selection of right investment products has ultimate importance. Your goal, time frame, risk taking capacity all influence to the selection of investment products. For example, if you invest in stock markets to meet a short term goal within next 3 months, it may be a definite failure. For such, investor should select capital protection oriented investments such as a Fixed Deposits etc because the goal time frame is too short.
6. No having a right adviser
This is one of the mistakes most investors committing frequently. In order to understand your financial goals, risk profile, required investment actions and products, choose a good financial advisor to get right advise on this.
Consider this fact, a qualified and experienced financial planner is a good option for investors, especially beginner investors to invest safely and successfully. A good adviser can help investors to not commit big mistakes.
7. Over confidence
Remember, even legend investors committed mistakes. No one is perfect. Those are thinking no mistakes happen from them would fall to the trouble first than ordinary investors.
8. Being a trader
Short term trading is a kind of gambling. History clearly shows traders have not made money, but majority of them have lost huge money due to their foolish trading activities in stock market. Remember, stock market is not the place to check your luck.
9. Improper portfolio balancing
Portfolio balancing should be done time to time based on the age, financial positions, risk taking capacity changes etc. Get advice from right financial planners on this. For example, if a person near to the retirement age holding a portfolio that have major chunk of high risk equity/stock investments, there would be a huge risk by considering his/her age..
10. Less diversified portfolio
Should not put all your eggs to a single basket. Any portfolio focusing only to a particular sector or company may face huge failure. Diversification is thus mandatory with a good investment portfolio to balance the same.
For example, if a portfolio focused to only large cap stocks or focused to the stocks of the companies from a particular sector have more chance of failure when comparing with a portfolio diversified with large, small, mid cap stocks and invested across multiple sectors and other investment asset classes.
11. Over diversification
Just opposite to the above point, over diversification can present with an uncontrollable investment portfolio to an investor. Over diversified portfolio is difficult to manage and monitor. As a result, good investments may miss and bad investments would be there for long time.
12. Concentrating to return
It is dangerous that, investing to any product for short time by focusing only on the possible return than the risk behind it. In other way, we can say these are blind investments by not realizing the fact but focusing only on returns. Interestingly, penny stock investors are heavily committing this mistake.
13. Being aggressive
Aggressive people never care about the possible dangers behind their action. Being more aggressive always put a person into trouble by taking wrong investment decisions. More than being aggressive, be assertive when taking investment decisions.
14. Lack of monitoring
Investments that meant for long term required to monitor time to time. Monitoring help investors to understand the performance of each investments. It also help to add better performing investment products and avoid non performing assets.
For example, mutual funds required timely monitoring time to time to identify the performance of the fund as well as the fund manager.
15. Finally, no time for research
Investment must be done with enough study and research. It is a time taking process, but the finaly result would be fantastic.
Ignorance always cost a person in two ways. First, without having right knowledge, an investor may not be able to identify the real potential of the investment. Second, he may not able to identify the risk associated with an investment instrument and that may lead him to huge investment failure.
If you have any points to mention or add to the above, feel free to comment below.