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When and Why Should You Stop Investing?

  • Highlights

  • A herd mentality can be dangerous in the investment world

  • Cryptocurrencies are one of the riskiest investment avenues

  • Investment in Ponzi schemes can wipe your lifetime savings

Risk comes from not knowing what you are doing
These words of advice from investment sage Warren Buffet hold tremendous importance in the investment world. Adopting a herd mentality can be dangerous particularly when it comes to investing in financial instruments that you are unaware of. Let's understand risky investment avenues and the implications they have for your wealth and financial goals.

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Cryptocurrencies – A Bubble Ready to Burst

The brouhaha of cryptocurrencies and their sky-high prices have attracted the attention of a lot of investors. Lured by high returns, many have invested their hard-earned money into these virtual currencies. However, cryptocurrencies are not considered a legal tender in many countries including India. The extreme volatility associated with them not only makes them risky, but the fact that they are not considered legal by the Government can land you on the wrong side of the law.

For example, Bitcoin, one of the most popular cryptocurrencies, has seen almost a 70% fall from its peak value of almost Rs. 13 lakh in December 2017. So, those who’ve invested in them are already staring at a massive loss. Cryptocurrencies, including Bitcoin, are a bubble that can burst anytime leaving you in a tight spot. In fact, the Indian Government made it clear that it would do everything to eliminate the usage of cryptocurrencies.

Ponzi Schemes – Eroding Savings of Your Life

IInvestments in Ponzi schemes are equally dangerous as they can erode the savings of your entire life. Thousands of depositors have realised this fact in the wake up of the collapse of several institutions allegedly running Ponzi schemes in recent years.
Ponzi schemes hit rural investors harder as most of them park the savings of their life into them. Notably, to protect investors from these schemes, the Union Cabinet of India has approved the introduction of the Banning of Unregulated Deposit Schemes Bill, 2018, that proposes to prohibit and ban unregulated entities from deposit collection from individuals.

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The Way Out

For retail as well as seasoned investors, it’s best to stay away from risky avenues and diversify their portfolio encompassing Fixed Deposits (FDs). Offering assured returns, irrespective of market performance, FDs are one of the safest investment avenues. While investing in asset classes such as mutual funds, it’s prudent to have a mix of equity and debt.
While equities help in building long-term wealth, debt prevents a dip in corpus during market swings. Taking a call on investments requires identifying:
- Your goals
- The available asset classes
- Your risk appetite
While asset classes such as equities can help you accumulate wealth for your long-term goals, time-tested FDs can help you realise your short-term needs.

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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