5 Mistakes which Lead to Common Financial Problems

To accumulate wealth and build an excellent source of additional earnings, the stock market can

To accumulate wealth and build an excellent source of additional earnings, the stock market can work wonders for every investor. Sound investment decisions can help one in achieving financial security. As an investor, if you have an online share trading account and a demat account with a reputed stockbroker such as Kotak Securities, you may have a wealth of information and guidance at hand on how to buy shares from your broker. 

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However, the stock market has also been known to fluctuate wildly ever so often, that has led to many an investor’s despair. To be successful in the stock market requires watchfulness and sound financial guidance. Here are five leading mistakes you may want to avoid, that are known to cause financial problems.

  1. Emotions: Most blunders are usually caused when investors overlook analysis and judgement and let emotions cloud their decisions when it comes to trading in the stock market. These emotions could be fear of missing out on a lucrative opportunity, the greed of wanting to earn more than expected and in most cases, anxiety or panic due to a variety of reasons. These emotions impact an investor’s decision-making ability and could cause disastrous results. For instance, you may have come across rumours of a market crash and decide to exit in haste or choose to invest considerable capital in an unknown company based on hearsay. To avoid this mistake, it is crucial to make your decision based on research and analysis rather than your emotions.
  2. Restrictive portfolio: some investors concentrate only on a particular sector, thus limiting their options. Focusing on a tiny industry without opening the possibilities of broadening one’s portfolio can significantly increase risk. This is because if a particular industry experiences challenging times, you could experience a significant loss. Investing in diverse areas helps to disperse the risk quotient. Hence, even if a specific industry is facing a lull, the other sectors that compensate for any losses you would have incurred.
  3. Not performing due diligence: some investors tend to look at ‘exciting’ stocks rather than the pedigree of the company. It is crucial to look into company details, business prospects, financial reports and other critical factors before deciding to invest in its stock. It is imperative to have some business knowledge, and this can come about by absorbing brains, knowing when to enter or exit the market, knowing how to decrease your risk, and understanding the future scope of your stock investments.
  4. Herd mentality: paying attention to gossip and rumours and acting upon it can cause one to follow the herd mentality that could spell disaster, either in the long or short run. Having solid research is vital to succeeding in the stock market. But if acquaintances and market rumours constantly influence one’s investment decisions, it can be a cause for worry. Based on your financial objectives and risk appetite, you may want to study a company thoroughly, rather than following herd mentality.
  5. Indisciplined investment approach: investing in the stock market must require calculated risks, patience and perseverance. Indiscipline or a casual attitude towards investment could result in tremendous loss. This is why experts recommend having a strategy in place before trading in stocks.