Which common investment biases should you avoid?
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Which common investment biases should you avoid?

  • Highlights

  • Avoid decisions based on your peers or trends

  • Choose investments after conducting research

  • Reduce and diversify risk with fixed deposits

Investments are an efficient method to save your money and secure profitable returns. But yielding good results is based on research and knowledge. While you do not require expertise in investing tactics to reap the benefits, adequate planning and information is key to ensuring rewarding returns. While learning the investment to-dos happens with experience, avoiding a few common mistakes will take you a long way towards growing your wealth.
Here are the common investment biases that can reduce your chances of profitable gains.

Following what others are doing

It is easy to notice the success of peers and be influenced by them. While considering an investment, it is tempting to choose one that your friend or relative has been raving about. However, it is important to base your investments on factors that influence the market and not what draws maximum contenders. If your work schedule does not give you enough time to research the scheme, choose a financial advisor and allow him or her to guide you.

Investing based on past success of the instrument

One of the common biases that majority of investors encounter is the simple notion of judging an investment based on its brand value and past successes. The market progresses on its own terms and faces fluctuations. So, a success story from the past is not always an assurance. So, base your investment on data analysis and market reports that reveal figures from the past alongside the fresh figures of the present.
You can also match your investments to your needs. Check out how.



Familiarity or trend chasing

It is easy to get carried away by multiple advertisements, but instead of looking for security by following a trend or an ad, seek familiarity in securities and financial instruments that stand tall even when faced with a volatile market. There is no harm in basing majority of your investment portfolio on conventional medium-return securities as a starter. Moreover, you can slowly build on the high-yielding returns via riskier investments one step at a time, when you gain more knowledge about them. If you prefer a low-risk investment that guarantees good returns, you can invest in a fixed deposit.

Developing an aversion to loss

In economic parlance, loss aversion is a need to avoid loss by all means. Usually experienced by new investors or those who have experienced recent losses, this tendency will keep you from benefiting from capital appreciation.
Rather than choosing only low-risk investments, diversify your portfolio based on your age and earning potential. Any advisor will tell you that even a conservative portfolio consists of 30% investment in high-risk options that can earn you higher profits.

Hoarding investments in hope of more profit

A little profit can make you think that you can receive even better gains. So, you may hoard your investment or restrict the sale of the stock in hope of more rewards. But the market is unpredictable and this is not always possible.
This way, you may also lose the invested money and the profit gained while anticipating more gains. Thus, it is essential to know when to let go of an investment and profit from the received gains instead of losing more than what you have gained.

5 Reasons to invest in Fixed Deposits

Distrusting investments that have crashed in the past

While some investments may have had major losses in the past, predicting the same fate for their future is impossible. Instead of avoiding these securities with a bad history, research their current standing in order to better judge their future potential.
Move away from common notion and biases and clear out your doubts through knowledge. Then choose the right path for investment to yield maximum returns.

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