Top Investment Portfolio Mistakes

Biggest Portfolio Mistakes to Avoid

If you are a beginner investor, this article meant for you and must go through.

In the other way, If you are experienced, ensure to not making any of the below mistakes with your investment portfolio

1. Asset Class Selection

Choosing an asset class by considering the recent performance rather than the average return of the those asset class at least for last three years.

Example 1, investing in gold by considering it's recent performance.

Example 2, when a sector is booming, such as IT or realty, investors run behind and invest on those company stocks hugely without considering the historical performances and return. The result will be, total failure!

Invest on sectors that have good earning history. Avoid fast booming sectors and industries until confirmed it has potential to invest for long time. Do not run behind new IPOs as flooding IPOs considering as the warning signal for next bear phase!

Ensure the companies and sectors has long history of generating earnings and have solid business and financial fundamentals to invests for long time.

2. Improper Portfolio Allocation

A good portfolio can be created by adding great stocks and high performing funds or other asset classes by properly mixing each in it. It should not give weightage to any industry, business or sector unless a specific goal that required to do so.

Also, a good investment portfolio need timely monitoring to ensure the performance of invested instruments as intact and as expected. Balancing should be done upon findings through proper monitoring.

3. An Investment Portfolio Without any Goals

Creation of any investment portfolio without clearly defined goals, would certainly collapse in the future. Adding few stocks can be done by anyone but proper clarification on why adding the stocks required.

One must define all the investment goals to create investment portfolio with right mix of investment products to meet those goals time to time.

Investor should have goals such as short, mid and long term and the portfolio selection should be done by mixing the right investment products to meet each of these goals.

4. Ignoring Associated Risks

Imagine what will happen if a portfolio has only small cap or penny stocks? Certainly it would be a worst failure because these asset classes has huge risks associated with it by it's nature.

When considering portfolio creation, one should take extra care on the associated risks with each product. This would help the investors to diversify the portfolio to deal with risks. For example, portfolio to meet a short term gold must include only law risk assets such as Government Bonds, Fixed Deposits, Liquid Mutual Funds etc.

In the same way, for mid and long term goals, investment must be done with high performing asset classes such as stocks and equity related mutual funds etc.

5. Ignoring Investment Rule of Thumb

The rule of thumb for investing is, at the young age, an investor must consider high performing, highly risky and reward investments, such as stocks and equity mutual funds and other instruments, to their portfolio.

When middle aged, the proportion of equity and debt must be balanced to avoid risks. If an investor near to retirement, must only have safe investments in the portfolio than high risky products such as equity or equity related investments.

6. Over Diversification

Clear investment strategy required to create and add right investment products to the portfolios meant for achieving each goals.

Over diversification is a very common mistake among novice and experienced investors. They would add all available products to the portfolio and later comes with a trouble to properly monitor or take decision.

Portfolio creation must be done through well study and with patience. No portfolio can make in a or two days and it may sometime takes years to add the right mix of investment products to complete the portfolio!

Warren Buffet said, if you don’t know what you are doing, then over diversification is good. A well mix of asset class selection only happen when the investment goal is well clear.

7. Frequent Churning of Portfolio

It found as the common activity of beginner investors. The reason behind the requirement of regular churning is investing on something without proper plan or idea. When those investment move to red, investors will panic and sell the stocks to add another candidate to the portfolio and finally ends up with huge loss.

It also give room for buying high and selling low, which is totally against the investment law.

Making investments required proper home work. Learn well about each product that are planning to include in the portfolio. Well planned investments have less chance of failure.

To avoid churning portfolio frequently, take good investment decisions through well research and study.  

15 Core Points on Top Investment Portfolio Mistakes

• Failing to diversify your portfolio can lead to significant risks and losses. 
• Ignoring the importance of asset allocation can result in sub-optimal performance. 
• Overreacting to market volatility often causes poor investment decisions. 
• Timing the market is a common mistake that usually leads to losses. 
• Neglecting to re balance your portfolio regularly can skew your risk profile. 
• Not setting clear investment goals can lead to unfocused and ineffective strategies. 
• Underestimating the impact of fees and expenses can erode your returns over time. 
• Falling victim to emotional investing can result in irrational decisions. 
• Lack of research before investing can lead to poor investment choices. 
• Over-concentration in a single stock or sector increases risk. 
• Ignoring tax implications of investment decisions can reduce net returns. 
• Failing to review and adjust your investment strategy as needed can hinder growth. 
• Not having a clear exit strategy can result in missed opportunities. 
• Relying too heavily on past performance can lead to unrealistic expectations. 
• Disregarding the importance of liquidity can result in difficulties accessing funds when needed.