Investor's Psychology

Don’t Know How to Invest? Here’s the Ultimate Solution to Your Problems

Created on 30 Mar 2024

Wraps up in 6 Min

Read by 6k people

Updated on 01 Apr 2024

Ultimate Investing Guide for both Millennial & GenZ Investors

The stock market’s history in India dates back to 1875, when the first share trading association, “Native Share and Stock Brokers Association,” was established, aka Bombay Share Exchange. Today, over 5,000 companies are listed on the market, and hundreds of mutual funds are available for people to invest in. Such a big number makes investing extremely tricky & even more riskier.

How do you come to a conclusion as to which stock or mutual fund is going to be the game changer for your portfolio?   

The answer to this question cannot be singular; after all, everyone has a different parameter of risk handling and investing style.

So, we will understand the problems investors suffer from and find the most suitable option for them.

And there is a little surprise for you all that could solve about 80% of your investing issues. So, make sure to stick to the article.

Problem 1: Decision Paralysis

When I started investing in the stock market, one of my friends suggested buying Yes Bank's stocks, while the other made profits from investing in mutual funds. I had little financial knowledge and was really confused as to which direction to take.

And in a hurry to prove myself smart and capable like my friends, I burned much of my capital. This is what decision paralysis looks like.

Decision paralysis, a common phenomenon also known as analysis paralysis, is a state of being stuck and unable to make a choice. It often arises when faced with multiple options, overwhelming information, or the fear of making the wrong decision. You're not alone if you've experienced this.

This particular problem gives birth to multiple others, some of which are:

a. Information Overload:

In today's world, we're bombarded with choices, from which cereal brand to buy to what career path to pursue. This can lead to feeling overwhelmed and unable to sort through all the information effectively.

b. Fear of Failure:

The fear of making the wrong decision can be paralysing. We might worry about missing out on a better option or facing negative consequences if we choose poorly.

c. Perfectionism:

The desire for a perfect outcome can prevent us from making any decision at all. We keep analysing and overthinking, never feeling quite satisfied with the available options.

The creation of decision paralysis and information overload can lead to panic and, more often than not, significant losses. It's crucial to understand and address this issue to avoid such outcomes.

Problem 2: Can't Differentiate Risks from Rewards

Many novice investors make this mistake more than once in their lifetime. They forget to match the basic characteristics of the investment options with their goals.

Imagine a hypothetical scenario where you have invested in low-risk options such as NPS or EPF. While you are content with waiting for the long-term rewards, life can be unpredictable, and unexpected events such as accidents or illnesses can happen. In such a situation, having adequate insurance is crucial.

However, if you don't have insurance and are facing a critical event, you may need a significant amount of capital to cover the expenses. This could be challenging, considering the lock-in periods associated with these investment schemes.

Just like the above example, new investors (and some seasoned ones) often find it difficult to pinpoint the hidden risks in investment options. Some of these are:

a. Life Event Blindspots:

Your financial plan might not account for unexpected life events like job loss, illness, or family emergencies. These events can derail your investment strategy if not adequately considered.

b. Hidden Fees:

Both beginner and active investors know that investment fees can eat away at returns. Not understanding expense ratios, commissions, and other charges can significantly impact your long-term gains.

c. Asset Allocation Mismatch:

Your risk tolerance might not be reflected in your portfolio's asset allocation. Holding too much stock for your comfort level can expose you to excessive risk, while a conservative portfolio might not meet your growth needs.

Problem 3: Trading Based on Feelings, Not Facts

Stock market is very similar to being on a rollercoaster, and the ride can make you queasy if your emotions are out of control. "Maybe the company stock price would increase", "maybe it will fall just like its competitor", and so on. Investing by being swayed by the "maybe" idea often leads to losses.

Here's a closer look at what else happens:

a. Fear and Greed:

Famous GenZ phrase FOMO (Fear Of Missing Out) can lead to impulsive decisions like buying at market highs and selling during dips. Greed can also tempt you to hold onto losing stocks, hoping for a comeback.

b. Market Noise:

The constant barrage of financial news and opinions can cloud your judgment. Chasing hot tips or reacting to market swings based on emotions can lead to poor investment choices.

c. Lack of Discipline:

Sticking to a long-term investment plan requires discipline. Letting emotions guide your decisions can lead to frequent trading, which incurs fees and potentially hinders long-term growth. This is known as the whipsaw effect.

And we at Finology strictly advise against this particular strategy.

Problem 4: Believing Only the Outdated Advice

The world is evolving, and so is the realm of investing. The stock, which was a must-have option a few years ago, might not be an excellent addition to your portfolio. However, multiple newcomers repeat this mistake without analysing their risk tolerance and suitable options.

Here's a brief insight into what relatable errors you might be making:

a. Clinging to Past Performers:

Past performance is not a guarantee of future results. Holding onto stocks that once did well but are now past their prime can hinder your portfolio's growth.

b. Ignoring Market Shifts:

The investment landscape is constantly evolving. Sticking to outdated investment strategies that don't consider new sectors, technologies, or economic trends can leave you behind.

c. Neglecting Rebalancing:

Over time, your portfolio's asset allocation can drift due to market fluctuations. Failing to rebalance periodically can leave your portfolio exposed to unintended risk or hinder potential growth.

By understanding these common pitfalls, investors can equip themselves to navigate the complexities of the stock market.

The Solution to the Problems? Take Action with Finology 30!

There are over 80 million investors in India (as of January 2024), but more than half of these enthusiastic individuals are bearing major losses. The problems discussed above are the cause of most of the losses.    

But, fearing the uncertainties that are part and parcel of the stock market is not a solution. Taking action is!

The worst decision is often no decision at all. Don't be afraid to move forward, even if you're not 100% certain. You can always learn from your experience and adjust next time.

If you are not a finance geek and find it difficult to understand financial ratios and statements, don't worry. Let me introduce you to a simple and easy risk-averse approach that can help you confidently navigate the stock market.

Finology's soon to be launching Flagship Stock Portfolio plan, Finology 30, brings a basket of 30 carefully selected stocks. These are reliable options with a long-term horizon that could be your portfolio's only need.

Finology 30 is a curated list of stocks offered by Recipe's expert analysts from the organisation and overseen by Co-Founder Pranjal Kamra. Here are some of the speciality of this approach:

  • Unlike other recommendations, Finology 30 is going to have a no-to-little-risk strategy. Taking the motto of "no unwanted risks", the experts are designing this approach for both non-finance & beginner investors like you.
  • Finology 30 is going to be the company's only recommendation; hence, there is no outdated data for your future. The organisation's ultimate focus is on building, tracking & revamping this recommendation basket.
  • The Finology 30 basket comprises carefully selected stocks that specialise in providing long-term returns.

Interested? Join Finology 30's waitlist for an exclusive launch offer access.  

The Bottom Line

The stock market is often bad-mouthed to be similar to a casino where bets are placed, and lives are changed. Though there are superficial similarities, nothing is a bet in investing.

With suitable investments, accurate information, and a good eye, anyone can change the so-called luck to play in their favour. All you need is the right direction and a good recommendation. And with this article, you have one.

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Preeti Gupta

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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