Who does not want to be rich? However, sometimes key portfolio decisions have a deciding factor on how long one takes to create wealth. The investing journey, especially that involves the stock markets, is not easy. There are lots of hiccups and many investors do not know what to do when the market shifts suddenly due to unforeseen, macro factors. Wrong decisions can backfire, which is why you must be wary of key portfolio mistakes that impede you from getting rich. Some of them are
Market levels are overly important to investors. They are oblivious to the fact that markets are made up of businesses. Volatility, crises, and wars have occurred, and more will occur in the future. Nonetheless, markets will rise in the long run because good businesses outperform bad businesses over time.
No doubt, volatility has been and will continue to be excruciatingly painful, but if all of those investors saw these corrections as opportunities to increase investments rather than exiting the markets, their returns would be significantly higher – this is where investor behaviour comes into play. Many fund managers are capable of managing investment volatility over time. It is the investors’ behaviour that causes them to miss out on investment returns.
Trying to time the markets
Trying to time the markets believing that you will invest at the bottom is nothing short of folly. You can neither time the markets nor tame them. With interest rates rising, we are all in an undefined territory, and this could be a difficult time for many new investors. Nobody can time the market, so the only message is “Don't try to time it either”. As Peter Lynch famously said, “More money has been lost trying to time the markets than has been lost in market corrections”. The idea is to stay the course, irrespective of how the market behaves. Focus on creating a long-term portfolio.
Succumbing to influencers
There are too many opinions floating out there on various social media handles like Twitter, Telegram, YouTube, etc. Many new-age investors fall prey to opinions expressed on these social media platforms. What many fail to realize is that these are merely opinions that do not cost a dime, so they do not necessarily share your risk tolerance. A worse scenario is that many may be unqualified to even lend their opinion on personal finance or investments. Following them blindly instead of discussing them with portfolio managers and advisors causes more harm than good.
Sometimes there is an inexplicable urge to change the portfolio. Adding stocks just because everyone is adding or getting rid of stocks because of a rumour floating in the market is typical behaviour among new, energetic investors. A lot of times investors want to see action on their portfolios, which can be confused with work done on the portfolio by the advisor. The same can be said for the companies in the portfolio. Not many realize that the longer they own a business, the better the chances of it performing in the long run.
Investing in one go
Have you heard of the saying, “Do not put all your eggs in one basket”? Many investors do not pay heed to this advice. They regard the importance of diversification across investments that can help normalize their returns. Also, many tend to invest in assets with similar or high correlation, which means if one fails the rest are affected too. Not realizing how diversifying investments can help even if they are doing poorly is another reason that disables people from creating wealth. There is more to investments than just bonds and stocks. Even investing in gold, money in real estate and bank deposits can help.
The biggest roadblock between you now and your becoming rich in the future is “unwanted debt”. Discipline is essential for investing success. There may be necessary loans, but avoid using too much leverage. Consider long-term investments. Look at wealth creation as a long-term process, not something you will have immediately.