Investment is one of the most important things in a person’s life. Making sound investments is extremely crucial in order to ensure a financially secure future for yourself and your family. Along with the security, investing in the schemes that suit you the best also provide a great source for added income. While all of this is something that most of us know and take steps towards doing already, there are times that investors might be investing in the wrong policies without realizing before it is too late. The smallest of mistakes can affect your financial future in the long term and hence one should always keep an eye out for what they might be doing wrong. Here are a few ways to know that you might be investing in schemes that are not very well suited for you.
3 ways to know you are investing in the wrong schemes
1. Risk too low
This is one of the biggest signs that you may be going down the wrong investment path. More often than not, the common investor makes the mistake of choosing investment options that are a little too safe to be able to help in the long run. While it is important to make sure that you are covering the base in terms of your risk appetite, it is also important to make sure that you are investing in options that can help you beat the inflation rates over the next few years and offer good returns in the long term. If you are only investing in schemes such FDs and PPFs, then it might be a problem since the rates of interest on investment options like these can be lower than equity based investments and while they offer a lot less risk, it is always advised that one builds an investment portfolio with both the options instead of just the low risk ones, in order to get as high returns on their investments as possible.
2. Insurance is not investment
There have been a number of cases where the investors treated insurance as an investment and took out insurance policies with high premiums. If you are considering this option or are already doing something along the same lines, you need to reconsider immediately. Investing in insurance policies with high premiums also restricts your options in terms of diversifying your investments and you may have to pass up on a good opportunity along the way since you are already putting a good portion of your income into the insurance policy. If you are looking for an option that can combine the benefits of both insurance and investment, without having to get insurance policies with very high premiums, then you should consider investing in ULIPs. Unit Linked Insurance Plans combine the benefits of insurance and investment, where a part of your investment is set aside for insurance purposes and the rest is invested in suitable funds.
3. Every option has a suitable term
There are a number of investment options available in today’s times, each with their own set of advantages and disadvantages. You may have done ample research on the factors that make the option suitable for you before investing, but there is one thing that people often neglect initially and that is the suitable term for the investment option. For an investment option like stocks, people often take it as an option that can be kept for short term and liquidated as and when needed. While the liquidation is possible, you may be missing out on a number of benefits by investing in stocks for just a short term. Similarly for other investment options like ULIPs and ELSS which have longer terms and it is always advisable to invest in them for a longer duration to get the maximum possible returns.