The New Year brings new hopes and fresh resolutions. Many of us promise to improve our health and careers, but financial health often gets left behind. A wise investor is not someone who only earns profits, but one who avoids mistakes that can erode hard-earned money.
As we step into the New Year, it is essential to take a closer look at our investment approach. Are decisions driven by emotions? Are investments being made without a clear plan? Below are some common mistakes you should avoid in the New Year.
Don’t Try to Time the Market
One of the oldest sayings in the investing world is, ‘Time in the market is more important than timing the market’. Both new and experienced investors often fall into this trap. They wait for the market to fall so they can buy at ‘low’ and sell at ‘high’. The reality, however, is that predicting market movements accurately is extremely difficult.
Data clearly shows how risky this strategy can be. If you missed just the 10 best days of the S&P 500 index over the last 20 years, your annual return would drop from around 9–10% to just 5–6%. That is a significant difference. When investors exit the market, they often miss the days when recoveries are strongest. Staying invested, therefore, is usually the wiser choice.
Lack of Diversification: Don’t Put All Eggs in One Basket
Are you putting all your money into a single stock, sector, or asset class? This is a mistake that can put even large portfolios under stress. ‘Putting all your eggs in one basket’ is considered one of the biggest investing mistakes. If that one company or sector performs poorly, your entire capital may be at risk.
Adopting a balanced approach is crucial. Many suggest introducing diversification into your portfolio. For instance, a commonly followed approach is the ‘70/30 rule’, where 70% of investments are allocated to equity and 30% to bonds or fixed-income instruments. This helps manage market volatility. Additionally, it is often advised not to invest more than 5–10% of your total portfolio in a single stock. This limits risk and protects you from large losses if one company underperforms.
Ignoring the Impact of Inflation
Many investors focus only on absolute returns and overlook the impact of inflation. Inflation is a silent factor that gradually reduces purchasing power. If your investment returns do not beat inflation, you are effectively losing money over time.
For example, if you have Rs 100 today and inflation remains at 10% over the next year, you will need Rs 110 next year to buy the same item. This means the real value of your Rs 100 has declined. This is why it is important to focus on real returns, returns earned after accounting for inflation. Keeping money only in seemingly safe options that offer returns lower than inflation can be damaging in the long run.
Lack of Clear Financial Goals
Investing without a goal is like travelling without a destination. You may reach somewhere, but not necessarily where you intended to go. Many investors, especially in the early stages, invest only for tax savings or by following what friends are doing, without a clear idea of how much money they will need in the future.
To truly benefit from compounding, setting clear goals and starting early is essential. For instance, if you invest Rs 10,000 every month at an annual return of 12%, your investment can grow to over Rs 1 crore in 20 years. This shows how disciplined investing, even with modest amounts, can create substantial wealth over time. Defining goals such as retirement, children’s education, or buying a home helps guide investment decisions more effectively.
Chasing Past Performance and Quick Profits
Many investors tend to chase funds or stocks that delivered the highest returns in the previous year. This behaviour is known as recency bias. However, strong performance in the past does not guarantee similar returns in the future.
Take 2025 as an example. While the Nifty and Sensex ended the year with gains of 8.18% and 8.89% respectively, a closer look shows that several equity mutual fund schemes, particularly in the small-cap and mid-cap segments, delivered negative returns. Although small-cap stocks have historically offered higher average returns of around 18.7% compared to 12.4% for large-cap stocks, they also carry significantly higher risk and volatility.
Making investment decisions based solely on past performance or the desire to earn quick profits can lead to poor outcomes. Disciplined investors focus on fundamentals and long-term potential rather than short-term trends.
Wrapping Up
Investing is a marathon, not a sprint. By avoiding these common mistakes in the New Year, you can build a more stable and effective investment journey. Instead of trying to time the market, stay invested, diversify your portfolio, account for inflation, and invest with clear goals in mind. Remember, a seasoned investor is not someone who gets it right every time, but someone who learns from mistakes and stays committed to their plan.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
