10 Financial habits to avoid for a smoother and diligent financial life

As we ushered in the new Samvat 2081, marking the start of a new Hindu Calendar year, here are a few financial mistakes you can say a strict no for your prudent and meticulously planned financial life ahead:

Here are few of the expert tips by Shaily Gang, Head- Products, Tata Asset Management

Falling in love with one asset class- The problem is that every single asset class we love will have a day where it would drop in large proportions. If it is later in life, one will have no time to make up for it, thus diversify.

Believing something will always Outperform- To each asset class that underperformed, you would have another one which outperformed. Thus, Asset Allocation should be aligned with one’s goals and risk appetite and followed throughout rather than shifting gears

Letting your emotions rule - Don’t panic sell your existing investments without knowing / understanding the recovery trajectory. Also, one should not buy something just because it is cheap.

Focusing on great investment moves-A cardinal rule to investing is to focus on avoiding big mistakes rather than focusing on making great moves. Experts probably can focus on making great moves but the rest should focus on avoiding mistakes. Because grave mistakes can negatively compound, rather hit survival.

Attaching SWP feature during accumulation phase - The best way to attach features to investments in order to build wealth is to utilize SIP or STP feature during the accumulation phase and attach SWP during harvesting phase. Wealth creation may happen when capital is invested in a systematic manner vide SIPs or STPs into Equity funds or even Hybrid category funds and gets compounded over the phase where the individual is earning an income or accumulating wealth. During the harvesting phase or post-retirement, when there is need for regular cash flows by the individual, SWP works very well. However, the SWP feature is more tax efficient than Dividends and replace dividend option during accumulation phase.

Delaying investing decisions- Anything that is big and profitable is the result of a tail event. And to have a long tail,  one needs to have multiple presence points and need to be in the game at all points in time. Staying long enough- Survival mentality is the key. Survival gives you longevity. For longevity, one needs to start early.

Sitting on the fence - In waiting for market bottom to be formed, the investor would lose out on spending ‘time in the market’. The investor could lose more by waiting in cash while all SIP tranches could have earned in a market that turns out to be upwards linear.

Looking at XIRR instead of absolute wealth creation - An investor who starts SIPs earlier, at the prevalent market levels at that point in time, may be able to build higher absolute wealth than the investor who waits for the market bottom to be formed as he spends less time in the market. XIRR return could be lower in this case however it is more about the creation of absolute wealth corpus.

Accounting for Expenses before savings - First rule to have a good start on Investing is having a bent of mind where expenses should be the balancing figure and not the Savings / Investments. A man with savings can walk tall, appraise opportunities in a relaxed way and not be rushed by any economic activity

Ignoring Emergency funds- The returns earned less on account of a relatively higher amount of emergency funds kept in cash are set off against the rash decisions one would take in challenging times by selling the core investments, just because you do not have immediately accessible funds to fall on. Emergency funds will always help one to ride through the bumpy course.