To err is human, but there is no forgiveness in the world of investments and markets. Once you lose the game, it is hard to get back on your feet and try a different strategy. Therefore, it is better if you hit the target at the first strike and leave no room for error. There are many pitfalls that you have to avoid when you decide to invest. Some mistakes might be silly and visible; others are more subtle that we fail to notice them. Nonetheless, mistakes are mistakes and you are better of without it.

So here are some of the common mistakes amateur investors make.

No Plan: Most of the wannabe investors invest their money without any actual plan. They go for a quick tutorial about different financial instruments or give in to the persuasions of agents and friends to invest in something they have no idea about. These investments might not be suitable for them, yet they put in a large amount of money without thinking twice.

The main reason for this is that they do not have any plan about how to build up their finance. Before you enter into the world of investments, make a detailed plan about what you intend to do. Your plan must be laid out so as to help you achieve your long time goal. The plan must be made by weighing how much risk you can take and the amount you wish to make in a given amount of time.

Overtime your portfolio must be changed like having more debt instruments and reducing your holdings in highly risky stocks. Only a detailed plan could help you decide when you need to switch over, how and where to invest.

A plan is necessary to build up a good portfolio with a good balance between risk and returns. If you have no plans you end up investing everything in highly risky assets or invest in something that is not at all suitable for you.

Having Poor Information: Information is the key that ticks the investment world especially the stock markets. Without good information you are likely to end up in deep trouble. Because the danger lies in the fact that wrong information not only prevents you from taking a correct decision but it also leads you to taking a wrong one, thus losing your money.

Many amateur investors do not know exactly where to look for the right source of information. So what they do is that they lend their ears to every other piece of information be it from TV, radio, newspapers and even dubious websites. This makes them stuffed with a whole lot of news and analysis that they will not be able to make a good decision based on it.

What amateur investors must learn is where to get the correct news and analysis. It takes time and effort and lots of searching and asking. However, sooner or later you would find a news source that is suitable for your kind of investing. Therefore, it is better if you don’t invest all your money when you start your investments. Wait till you get your information source correct.

Investing by Emotion: Don’t worry, you are not alone on this. Even seasoned traders and investors make this terrible mistake of giving in to their emotions. Sometimes, they would rush in to invest in something when the best strategy would have been to wait and see. They might lose their patience by waiting and give into their adrenaline rush.

There are times when investors fail to make the plunge even if their calculations tells them to do so. This might be because others aren’t investing in it and the investor fears that his decision is wrong. However, the reality is different. If you think that an investment option is worthwhile, do not hesitate to take the plunge. Let the rest of the world follow you.

Over enthusiasm, fear, over confidence and under estimation is some of the mistakes that investors make. Keep you emotions at bay when it comes to investing. Over here there are only numbers and if it says profit, then go for it, if not, then keep your cool and wait for another opportune time.

Investing For Short Term Only: Investments are for a life time and sometimes beyond. Most investors invest for a very short term. This leads to low returns that are insufficient for retirement. A short term investment also leads the investor to take higher risks thus increasing the chances to lose his money.

Making a long term investment is better when it comes to returns and risk. So time your investments for a 10 to 20 years period so as to avoid losing the benefits of investments.

Investment is like war, if you are not prepared for any eventuality, then you end up losing it. With a good plan, right information, a long term view and never giving in to your emotions, you could actually win this war and go on to lead a happy financially secure life.

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2. Why Investors Should Stay Away from Endowment Policies?
3. Good Returns & Zero Risk, PPF offers Best Bet for Conservative Investors

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Why Rs. 1 Crore is Not Enough?

To explain this, let’s go thirty years in to the future to the year 2042. You are old and frail and about to fall apart, so you decide to retire from your job and live a comfortable life with your future children and grandchildren (if they take care of you).

It is obvious that you never want your children to foot my bills when you retire. To protect your pride, imagine that you have saved Rs. 1 crore and had it invested it in a risk free bank deposit that gives 9% interest, which will earn you Rs. 9 lakhs as annual income. A cool Rs. 75, 000 per month. Not a bad income for an old person, don’t you think?

However, when you sit down to calculate the cost of living 30 years from now, you will get a fair idea about how little Rs 75, 000 per month turns out to be. Having an income of Rs. 75,000 per month is good in 2012, but what will it worth be in 2042?

The answer is Rs. 75,000 will be equivalent to Rs. 5 lakhs approx. in 2042. It means that you should be earning Rs. 5 lakh in 2042 to live comfortably that you are currently doing with 75K. In that place how will you live with Rs. 75,000 in 2042?

The math says that your retired life is going to be hell, especially if you retire in an urban area. An earning of Rs. 75,000 is just not going to see you through the expenses of urban life in 2042. You will end up at the mercy of your children and grandchildren. Now that is not how you want your life to end up being.

Major Expenses When You Retire

The major expenses when you retire can be broadly divided into:

Medical Expenses: With the kind of lifestyle we are living now, our medical expenses are bound to increase in future. Our unhealthy life style is surely going to increase the number of illness that we will be facing when we turn 60. Our life will be sustained by a handful of pills and injections.

Already, the medical expenses are shooting up. It will increase further in the coming years. Without adequate government support, we won’t be able to take care of ourselves with our meager savings. Having an income of Rs. 75, 000 will not help you cover those expenses.

The first thing to reduce your medical bills in future is to take care of your self when you are young. If you maintain a healthy lifestyle for a long period, chances are small for you to have lifestyle diseases. This itself will cut your medical bill by half in future.

Food Expenses: Simple living and healthy food is not only good for your health but also good for your purse. Never think that simple living is something you can do when you grow old. Practice it when you are young itself and you will see the changes. If you reduce your food consumption now, chances are that you will reduce food consumption still further, when you retire.

Care takers Expenses: When you retire, you won’t feel strong enough to live alone. Most retirees will depend on care takers to maintain the house, to cook, or to do outside works. This will be a good drain on your savings latter on in life. The only thing to stop this is to train yourself to do almost all work by yourself. Reduce your dependence on care takers and servants now. Once you do it, you will feel much stronger and healthier. The feeling of independence is more than enough for you to live a happier life.

Travel Expenses: Another expense that every retired person incurs is travel expenses. Try traveling more on public transport systems. Walk small distances and avoid using taxis and autos as much as possible. This practice will continue in to your retired life and you will find your self walking more than your friends and saving money a whole lot more.

Miscellaneous Expenses: There is a plethora of other expenses that you will incur when you retire. You might want to give a birthday gift to your grandchild on her birthday, you might want to indulge in some hobby or make some purchases for your personal needs etc.

All this has to come from the income that you get by investing Rs. 1 crore in a fixed income schemes. It is clear that you won’t be able to pay for it all. With inflation hovering above 7% things are looking bleak for our generation. No amount of saving is looking big enough to see us through our retirement age. The only option is to invest money in instruments that give more returns even if it means high risk.

Then the other viable thing to do is to never retire. Keep working and make money as long as there is life inside you. Guess, when we get old the concept of retirement itself will be long gone. People might work well into old age and stop working only when they fall dead.

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1. Amazing Investment Strategy! How to turn Rs.1000 into Rs 1 Crore in 30 Years

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The key to partying and socializing in college narrows down to one thing and that is money. Anyway at this point its worthwhile to remember what that ad says, “There are some things that money can’t buy, but for everything else there is…(You know what)“.

Methods to Save Money if You are in College

Now being in college need not stop you from saving money. On the contrary, you get to save a lot during those times. Here are some easy ways to save money without sacrificing on your fun.

8. Be Your Own Finance Minister; Make a Budget: The first thing you need to do when you start to save, is to make a workable budget. It may sound ridiculous at first, but it is actually fun. There should be a long-term budget and short monthly budgets.

Long-term budget means to calculate the rough estimate of your expenditure for your whole tenure at the college. See how much money you can spend for that time. This is just a rough estimate and is used to give you a sense of how much you can spend. This helps you to plan your monthly expenditures. If you are rich enough the budget could go up. If you are going to college on a student’s loan and then you will automatically reduce the long-term budget.

Short-term budgets are detailed and usually done at the beginning of each month. This is where you must actually be saving money. Divide your expenditures into groups like food, rent, transportation, entertainment etc. and allocate money to each group. Then strictly live according to the allocation. You can allocate more money to entertainment also, but you must be able to make up for it in the next month. This way you could keep your long-term budget in check and can have real fun, when you decide to party.

7. Beware of Small Expenditures: You may not see them or feel them, but they are always around you sucking away at your income. Be careful of these tiny expenditures, which will eat into your pocket. They are hard to detect because they are small and sometimes very usual. You might not remember quickly how many times you went to a tea stall for a cup of tea. Expenditures like these are a drag on your pocket money.

If you are more aware about your spending, then you can prevent overspending on items like these. In addition, there are small expenditures for some like smoking, using paan and drinking. For those who are able to quit these habits can see how much they could save at the end of the month. Moreover, quitting the habit could also save astronomical amounts in medical bills.

6. Change Your Lifestyle: Actually, using a bicycle or using public transport is cool, never mind the amount you can save in this way. It is also a service to humanity. Going eco-friendly has the added advantage of improving your health. Use your bicycle to go to college and you will be in better shape than your friends in no time.

Choose pastimes that are different and not too costly. You can pick up a hobby or go for some societal work. Having no alternate activities makes you want to spend time with your friends at the mall or go to expensive restaurants etc. thus spending more. You need not shun these things altogether, but you can put in a check by doing something that gives you more peace at heart. Just substitutes those expensive things that gives you fun with more productive and useful activities that gives you pleasure.

5. Eat Healthy: This follows from the above. Eating healthy, homemade food is part of changing your lifestyle. You need not spend huge amounts of money to eat healthy foods. On the contrary, more money is spend eating junk food than healthy ones. How ironic is it? You spend more money so that you can eat foods that are bad for your health.

Eating healthy also means saving money. If you are staying at home, help your mother in the kitchen and learn exactly how she prepares those delicious foods that no up-town restaurants are going to cook for you. This could also help you out in future when you are away from home. For those who are living with friends, there is no better fun than cooking tasteless food with your friends.

4. Avoid Credit Cards Like the Plague: Now, you need to get this into your head: You Don’t Need Credit Cards to Live Your Life. See most youngsters are so much addicted to this card that it practically rules their life. Maybe it is the false sense of security you feel thinking you can buy almost everything if you a credit card. But remember, before long  you will be in deep trouble with a neck load of debts that you cannot repay. Why do you need to lose your reputation, when you can live with dignity without any debts?

3. Learn The Way of the Buddha: Well, you could add a sense of spirituality to your saving regime. So learn the way of Buddha, which is the ‘Middle Path‘. The crux of the teaching is simple; don’t do the extremes dear. Don’t overspend and don’t be a miser either. Learn to go through the middle path. God gave you the power to think or otherwise you won’t be reading this. With complex thoughts it is also possible that you know what is good and what is bad for you.

So, to practice the way of Buddha you must use your head and be wise enough in your spending ways. Only a person who can enjoy the world and also bear the hardships of renunciation could really say that he is living in the right sense.

2. Investing is the Best Saving: As the saying goes,” Attack is the best defense”. This could be applied to your college saving technique too. Invest your money in income generating sources that gives you moderate returns. It is better to avoid risky investments because you are in college and not earning.

When you are investing the money, you are actually saving the amount, which would otherwise have been spent. The moderate income that you invest will give you an incentive to keep investing and make more money. So if you want to save, invest your money each month.

1. Do Part-time Jobs: There is nothing better than working and making your own money. This helps you in saving too. With added income you could also invest it and make more money. You could plan your investments such a way that you will only need money from that investments and not from your parents.

In addition, having jobs in colleges will prepares you a lot in future when you get into the real world. You will get a feel of real life that encourages you to perform better.

These are simple and basic rules on how to save when you are in college. In addition to saving money, learning to save will also help you to discipline your self. So start saving without losing any of the fun of college life.

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1. Four Easy Ways to Save Your Hard Earned Money from the Taxman
2. Six Well-Known Ways to Invest 1 Lakh Rupees to Save Tax
3. 9 Tips to Save Money on Low Income

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Now, the problem here is not how to become make money but to maintain it and to make it grow. This is where many of you ‘lucky’ people suddenly get unlucky again. We just don’t know how to handle large sums of money at one time and we get confused a lot. When the confusion overwhelms us, we begin to spend money in the most unproductive manner. Before long, you will find yourself in your old unlucky state.

Therefore, be smart with your money and invest in these things. Then you can stretch your legs and retire early in peace.

Invest in Tax Saving Schemes: First, invest in tax saving schemes that gives you moderate returns such as Public Provident Fund or National Saving Certificates etc. This helps you to save on the tax and also will give you a moderate return. Tax saving schemes are safe investments and so you can reduce your risks while making money on your money.

Invest in Insurance: Though insurance comes under tax saving schemes, this is added as a separate point in order to emphasize its importance. Taking insurance might not be an investment option but it makes sense when considering it as an investment against unfortunate events. Remember, your windfall gain was good fortune, likewise unfortunate events might also happen.

Taking life insurance alone is not enough. You must also go for medical insurance that covers against diseases and accidents. There are schemes, which insure the health of your whole family too.

The most unexpected and huge expenses are usually related with medical care. Therefore, taking medical insurance will actually see to it that your money is not spend unnecessarily on medical bills. Besides, don’t worry that you will be losing money on medical insurance. There are offers that gives you free check ups and treatment if you don’t claim any medical bills. This helps you to be aware of your health and also to maintain a healthy lifestyle.

Invest in Debt Instruments: Bonds, Government Securities, Corporate bonds etc. are all debt instruments. The purpose of investing in these instruments is to get continuous and moderate income. Debt instruments are not risky except for corporate bonds. So you can be sure that you will be getting a regular flow of income without being tensed.

Do not invest in long term bonds that might run for 20 or 30 years. Invest in medium term bonds because interest rates keep changing and you need to change your holdings in bonds, occasionally, to bonds that give you lower rates.

Invest in Mutual Funds: The tendency to take risk rises when you get a windfall because you did not feel the hardship in making it. To make money many squander their windfall gains at the stock exchange. If you do not have any prior knowledge about the market, do not invest in shares directly. Many will advise you to do it but once you are in it, it is hard to escape the lure and you will end up with nothing.

Nevertheless, without taking risks you cannot make your money grow. So, the best option is to invest in Mutual Funds. There are highly respected fund houses like HDFC, ICICI etc. that gives you good returns. These fund managers know what they are doing and definitely knows a whole lot more about the markets than what you do. Therefore, let them do the trading and you can sit back and relax while you get handsome returns.

However, Mutual Funds are highly risky and you must be ready to take that risk. Anyway, this risk is much lower than if you had invested in stocks directly. Plan how much risk you are willing to take for the returns the fund managers are promising and invest only that much into it.

Invest in Bullion: Gold and Silver are shinning like never before. As Indians, we have this penchant for bullions. However, the good news is that you can spend your money on this weakness. Gold has been growing rapidly these last few years and has given abnormal profits for those who were invested in it. Besides, this serves as a store of value and shields your money from inflation and weakness in the economy.

Buy jewelry for you wife and children, but make sure you invest more in gold coins and bars than in jewelry. This is because jewelry costs you more in making charges and sometimes the gold is not pure, so you would not get your money’s worth.

Invest in Small Business: If you have the entrepreneurship bone in your body, then use the money to start a business of your own. Study the pros and cons of your venture very thoroughly before starting. In addition, don’t invest all that you got in it. Put in an amount and keep the rest for other investments and as reserve money. Try to get funding from banks or from friends and relatives. Now there are Venture Capitalists who might be interested in giving you the extra funding.

Invest in Entertainment: What is life without some fun? Enjoy your self with the money you got. Investing in entertainment gives you a feeling of well being and it reflects in your happiness and peace. Therefore, go out and dine in the most expensive restaurant or go for a tour. There is no harm in it. However, you must not indulge in it. This is why this point is the placed at the bottom.

When we get a windfall gain, most of us make entertainment the first priority. The downfall begins there. Once having fun is your priority, then maintaining your money will be an impossible thing to do. So have fun within your limits.

Making the best of the opportunities that providence gives us is what smart people do. A windfall gain is an opportunity to change your life forever. If you play it smart, you can live the rest of your life the way you want. However, if you don’t, then you are going to regret it every single day that you live on this planet.

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In the killing fields of Stock Markets, there are some warriors, who stood their ground no matter how the markets went. These are those who beat the markets and live to inspire others.

Warren Buffett – The Oracle of Omaha

When you start investing, it is always good to begin at the feet of the wise. Warren Buffett has been know for his reserve and calculated investment style, which has earned him a fortune to be called one of the richest people on the planet.

Invest and Avoid Trading: Warren Buffet do not trade in the typical sense. He is a good investor who believes that when you buy a stock it should be like buying the company itself. This means that you must be aware about the value of that company. You must know what the company is doing inside out. You must know about the product the company is selling. His basic mantra is Invest in what you know.

Find the True Value of What You Invest in: Buffet determines the true value of companies by looking at their fundamentals. It is not hard for you too to check on how a company is performing, who are in the management and what their histories are. Maybe you don’t have the resource to get materials and analyze them as Warren Buffet does, but you could do some basic research at least.

By going through many data and reports, Warren Buffet determines the true value of a company. He looks if the price of its stocks is undervalued, which means the value of the stocks is less than the true value of the company. If the company were undervalued, then he would buy it because he knows that in time the price will go up. This type of Value investment has brought in rich dividends to this 81-year old investor.

Stay Calm: In addition, he does not jump the gun when markets go against the purchase. He stays calm and do not sell if the prices plummet and do not buy if the prices go up unreasonably. Warren Buffet knows the real price of the company and knows well that the market will eventually correct to reflect the company’s true value.

Invest in What You Know: As stated above, he invests in business that he knows and can predict fairly well the future prospects. This is one reason that he didn’t invest in dot.com business and other technology companies. He had no inkling about its business and was not able to calculate its true value. That was not the case with Coca Cola. He knew exactly what the business was and did not find it hard to see a big future for the soft drink, especially in this globalized world.

Don’t Over Diversify: Warren Buffet never over diversifies his investments. He knows fairly well about the stocks he posses, which do not usually exceed more than 10. If you have researched well and identifies the true value of the stocks, then why should you go around investing in many companies? This might be unconventional, as you might have read that diversification is the basic rule in investing.

The basic thing against it is that if you over diversify you would not be able to profit when some companies make a huge killing. Your profits will be tied down by other companies which are facing a loss. By buying into companies from different sectors you are becoming the market itself. How then, do you propose to beat the markets as Warren Buffet and most of his tribe does? Therefore, stick with a few stocks that you find to be undervalued.

However, diversification in low risk financial instruments is not bad as long as you do not go over board with it.

George Soros – Destroyer of Bank of England

Once you get the taste of investing from Warren Buffet let us go in to the world of speculation and trading. There is a stark difference from the warm and reserved and calculated Buffet to the more aggressive and speculative type of George Soros.

George Soros is known to be more of a trader than an investor with his interest mostly in bonds and currencies. He believes that markets are chaotic and traders fall for the herd mentality. His style is hard to pin down but some of his basic trading tips are good.

Go Ahead of the Herd: George Soros was aware of the herd mentality in the markets and he used it to his advantage. He never was the person to be running along the herd. He is known to move ahead of the herd and make the first killing. His instincts were very strong and he could sense when a herd was about to move. He didn’t wait but act swiftly when an opportunity beckons.

Time to Reflect: Soros may be a haughty trader, but his decision to hold or sell was a result of long reflection. He also used to consult a few people who mattered and those who could give a good account of the situation. He also took time to reflect and think about the markets and what should be done. Typical traders react by the moment but here is one of the world’s greatest trader reflecting and thinking before going in for the kill.

George Soros used to speak about his animal instincts which helps him to trade but that instinct was strengthened by many hours of thinking and deliberations.

Taking Big Bets on Decisions: Once Soros was sure of a decision he never backed down and went all the way to profit from it.

His greatest achievement was on September 16, 1992, when he decided to sell $ 10 billion worth in Pound sterling by taking advantage of Bank of England’s refusal to increase the interest rate. This led to the fall in value of the currency and Soros was able to profit around $ 1 billion on a single day. He was nicknamed the ‘Destroyer of Bank of England’ from that day onwards. His victory comes from betting huge on his decision. Taking huge bets like that are unique to some traders like Soros, it is clearly not advisable to beginners.

Willing to Cut Loses: George Soros was the man who was always willing to cut loses when he took a wrong decision. This could be far different what Warren Buffet does, but then again, Soros is a trader and Buffet is an investor. George Soros is putting money not because he thinks he needs to be own whatever he invest. He just wants to make money. Sometimes decision will go wrong and he knows that he is wrong. He won’t hesitate to cut loses and call it a day.

George Soros believes that this business is a painful one and one needs to be ready to get bruised and wounded.

Rational Thinker: What stands out in Soros’ personality is that even though he is a trader he is a rational thinker. He never let emotions take the decision for him. He trades with reason by his side. Most traders fall victim to their own emotions and take quick decisions based on nothing but feelings. Though Soros always works on hunches and instincts they are always backed by cold meticulous calculations.

These two investors are poles apart, yet they have worked out a fortune that few men can ever dream. Their common traits seem to be the fact that they haven’t let emotions take the better of them while taking investment decisions. Their constant companions were reason and reflection. These qualities helped both men even if the course they took were far and wide.

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