It is that time of the year when most of us make resolutions for the new year. While some of us, for instance, want to quit smoking, some others may want to lose weight or spend less time on their phone. However, most of these resolutions are related to leading a more organized and happier life, and won’t help improve your finances. If you are keen on making your future financially secure, then you need to make some financial resolutions too and should also try to give up some bad investment habits.
Here are 5 bad investment habits which you need to give up this year if you want to become a rich man going ahead:
1. Being guided by fear and greed
One major bad habit for investors to give up in 2018 would be greed. ‘Fear’ and ‘greed’ are the two emotions which prevent investors from making huge windfalls from the stock markets. After three years of this bull market, fear is slowly but surely abetting away. While this is a great development, greed which is linked to all bull markets is creeping in. So, greed would be the biggest single factor to guard yourself against going forward.
2. Being swayed by media reports
The second mistake which investors should prevent is not to be swayed by media reports and blitz. Investing is a serious business and requires a patient, long-term approach. Media, on the other hand, runs on short-term excitements and euphoria. Taking media reports and analysis seriously prevents investors from taking an independent, long-term approach in many cases.
So, “while financial newspapers and TV channels do help you in keeping updated on economic news and corporate results, investors should not necessarily make buying or selling decisions based on recommendations made by experts coming on various media channels. A successful investor makes his own judgements based on his own research as well as his unique risk profile. This is particularly relevant in bull markets because noise levels go up disproportionately and it is very tempting to get swayed by the bull market rhetoric. Hence, deviating from your financial plan due to high decibels of analysis and recommendations surrounding you is another big mistake to be avoided in 2018,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
3. Hoarding cash
During the note ban, everyone stood patiently in long queues to deposit and withdraw money that genuinely belonged to us. Many saw their financial plans and household budgets go topsy-turvy. Though cash offers great flexibility and liquidity, but hoarding it is not a good idea. Therefore, “it is in your own interest not to keep the minimum cash in hand. Even the contingency fund that you’ve created to meet unforeseeable crisis should either be invested in instruments that offer higher liquidity or at the least be kept in a savings bank account,” says Brijesh Parnami, Executive Director & CEO, Essel Wealth Services.
4. Depending on cash transactions
During demonetisation, mobile wallets and other digital payment options witnessed a huge surge in volume and value of transactions. The note ban was less painful for those who were comfortable using mobile wallets or e-payment options. And those who had started from the basics, found the going tough. So, learning newer ways of managing money will not only make you less dependent on cash, but will also help you manage your money in a more efficient manner.
5. Being a dishonest taxpayer
Cash deposits of over Rs 2 lakh made during the demonetisation period were required to be disclosed while filing the income tax return (ITR) for the assessment year (AY) 2017-18. Accounts in which cash deposits were made over the given limit are now under the I-T lens and some have even been served with I-T notices to explain high-value deposits. Therefore, “to avoid getting a notice from the tax department, disclose your income honestly and don’t attempt to evade taxes. Instead, make tax-efficient investments in products like ELSS, NPS, tax-saving fixed deposits and PPF to save tax and earn good return,” says Parnami.