Nowadays, investors are increasingly becoming more knowledgeable and making more informed investment decisions than the investors of the earlier years. Various investment education sites, newspaper and magazine coverage on personal finance related matters and investors’ meet are helping the common investors a lot to make correct investment decisions. Anyways, despite the enriching know how of the investors’ community, a lot of myths or misapprehensions are still raging among the common investors. Here we try to discuss about those myths.
Tax saving investments
Many investors like you view investments only as tax saving instruments. Many of you invest a part of your annual income in tax saving investments. This is done to avoid taxes. Many tax saving investment options are there. You can invest in such options so as to avoid taxes. However, this is not the best of the approaches. Tax planning is only a part of the holistic financial planning. Your entire investment planning should not only aim at to avoid taxes. Instead of viewing investment as tax saving instrument, you must view it as a wealth accumulation instrument.
Diversification of investments
One basic investment advice given in the basic books of investments is that the investors should diversify their investments in various asset classes. The underlying aim is to reduce the risk of loss. The diversification of investment principle says that you should not invest all your money in a single stock or in the stocks of the companies hailing from the same industry. This is so because in case that particular stock or that industry fares badly, you would lose out all your money. This is similar to not putting all the eggs in a single basket. In case a particular egg gets rotten, it soon spreads to all the eggs in the basket.
However, in order to abide by this basic principle of investing, it is often seen that many of you actually over diversify. Over diversification implies that you lose out many high-yielding income earning opportunities. So you need to ensure that you do not over diversify your investments.
Save for the retirement
As a young and ambitious investor, you often do not pay much attention to your retirement planning. You may think that you have plenty of time for that. But that is not the right approach. You have to think about your retirement right now. The cost of living has gone up appreciably in recent times. Prices of goods are showing no signs of decline and this trend is likely to continue in the future. You need to start investing money for the retirement purposes right now. If you can save some money at the present times by reducing your expenses then you can build up a substantial retirement nest for you. This will help you spend your retired life peacefully.
Though the investors at the present times have become smarter but they have many more things to deal with. Now, the choices before the investors are countless and there is information flood too. In such circumstances, it is not also very easy to keep one’s cool and to make the right investment decision.