8 brutal mistakes investors make which destroys their financial life

POSTED BY nandish@jagoinvestor.com ON January 1, 2018 COMMENTS (42)

The year 2017 is coming to an end and I would like to share some of the common mistakes which I have witnessed in some investors financial life.

You can never have a perfect financial life but you can always live a regret-free financial life. I take this opportunity to thank those who opened up their heart while I was helping them in designing their financial life.

investors mistakes

While you are reading the article look into your own financial life and keep your own financial life under a scanner.

Here are the top 8 fatal mistakes

Mistake #1 – Rely on company health cover

I suggested someone to buy a 10 Lakh health cover in the year 2015.

The person works in a bank and at that time he was least interested in having his own health coverage. In 2017 he calls me and says, “I have got a serious health issue, cancer detected in my kidney and doctors have suggested me to cut a portion of my kidney”.

He said, the Bank is ready to give only 3 Lakh and the actual expense is of 8-10 Lakh. He requested, can something be done to buy a backdated health policy to which I said NO.

There are many people who rely heavily on their company health cover and sometimes end up paying a huge cost. One illness and it has the power to eat away all your savings. See that you are having health cover of your own.

Mistake #2 – Addiction to credit money or loans

You see so many advertisements these days talking about buying things on EMI and low-interest rates offered on personal and credit card loan. One of our clients tried to learn the craft of shuffling money using different credit cards.

He will take a loan from Credit Card A and then use Credit card B to pay the outstanding. Initially, he got some success but eventually, he got into a debt trap. He was already having a home loan and car loan while discussing his plan we suggested him not to add any more liability and to stay away from credit card and personal loans.

He did not listen and eventually, he had to stop his SIP, his savings got NIL and is now regretting.

Mistake #3 – Overspending because of Social Pressure

One of our clients kept aside 30 Lakh for his daughter’s marriage but eventually ended spending 70 lakh. All the extra spending took place in the name of “trying to look good”.

Under the pressure of relatives and on the name of customs, he ended up spending heavy money. The extra money spent took almost 10 years to accumulate and it was part of his retirement corpus.

I see many buying a bigger house, a bigger car etc to show they are successful. It’s time to get rid of such social pressure, as no one is going to come to fund your retirement or future goals.

Mistake #4 – Heavy Spending Habits

A lot of people like to spend on gadgets and things which they really do not need. As Warren Buffet once said, “If you buy things you don’t need, very soon you will have to sell things which you actually need”.

warren buffet money quote

The words and advice by him are precious and everyone should check their spending habits. What are you spending your money on? And what value is it creating in tangible form? Stay away from instant gratification and impulsive buying habits.

It can be buying an expensive gadget, Treadmill or some fancy home equipment.

Mistake $5 – Over relying on Robo Advisory

There are many Robo advisory companies in the market. Now, using technology is not a bad thing but one has to check the quality and not the price of using some platform.

A few months back I accidentally happen to get on call with a person called Shubham Kapoor (his actual name), he said he has got some advice from robo advisory firm and he is not confident about his Mutual Fund investments. He shared his portfolio with me and the funds suggested were all shit. I immediately asked him to take corrective actions.

His current portfolio is designed by me and the funds are doing excellent. As I was writing this article I asked him to share his experience and he immediately shared his experience with me. I have not edited a single word, we do not hold any grudge against any robo advisory firm but at the same time it has to deliver quality advice.

Hey Nandish,

Hope you are doing good, my experience with Robo advisory is underlined…..feel free to edit

” After Reading through numerous blogs mentioning the benefits of fee only financial planners I came across a Robo advisory firm (Let’s call it ABC ) which guaranteed Advice free from any Bias and manual intervention. I agreed to the concept and after paying the fee plugged in my input details in their software tool.

The financial advisor from the firm fixed up a meeting with me via skype and the suggested portfolio to me(Auto generated) carried out 8 MF’s(SIP in total was 20K/month).I was not comfortable with the cluttered portfolio and also with the choice of funds.

after deliberating for couple of months, I went ahead with the suggested MF’s as it was Robo advisory which hopefully knew better than me!

the review was six monthly and every time my question on choice of funds(as they were performing very poorly compared to benchmark) were unanswered, the responses were vague and confusing.

I was not expecting immediate gains but after 3 such reviews in a period of 18 months i was still not getting the comfort and trust level, this is when I decided to stop my investments via them.

I am still baffled whether suggestions made through Robo Advisory were free from any bias or whether they were for their own commissions, your call!!”

Now, if you are investing your money with help of a robo advisor or a real human advisor, you have to make sure that there some quality advice delivered to you and some alpha is generated (extra performance, which you can’t bring on your own)

Mistake #6 – Getting attracted with FREE advice

This one is my personal favorite, many people get tempted to free advice.

It comes from the person known to you, your relative, your friend or some uncle who calls himself or herself your well wisher. One of my relative sends a pdf to me on whats app to check whether he should continue with his ULIP policy or not? The ULIP was sold as free advice.

I and my team did some working at our end and sent below email to him.

Hi XXXXX,

The return given by Reliance ULIP policy is only 6.75%. ( Extremely bad performance). You have accumulated only Rs. 354591/- after investing 3 Lakh

The policy has no loyalty benefits nor any extra benefits. If you complete whole policy period, the return will be equivalent to FD.

If you would have done SIP of 5500 per month for 57 months you could have accumulated Rs. 392000/- at the rate of 12%.

SA is only 15 lakh ( It is not giving you any higher cover)

Coming to charges:

  1. Upfront charge is 6 % as premium allocation charge. You paid 3 Lakh and they have charged upfront Rs. 18300/-
  2. Fund Management charges, mortality charges is around 4 % annually. These charges gets deducted from the amount accumulated at the yearend.

Better to come out of this policy as it has completed 5 years ( in this December) and there is no lock-in

Nandish

Guys, there are no free lunch in this world, go to a professional and look for authentic advice (if you cant take it on your own). Sometimes we also go wrong with a few suggestions/advice but the intention is never wrong. If you are taking free advice from some website, Facebook group, whats app free group stop the same immediately.

Mistake #7 – Thinking that DIY is for everyone

There was this one person who was on our client list and on one fine day he decided he will start managing his money on his own. I was happy with his decision but somewhere I was not sure about his money management skills.

I had many plans for him on how I can help him to grow his money but he concluded things very fast. He read a few books, did some seminars and is also active on various blogs and forums.

His portfolio grew from 0 to around 75 Lakh in a span of 7-8 years. I do not have his current numbers but if the portfolio is not taken care of his profits will get eaten away by the market.

I have seen people losing huge chunks of money because they focused on buying 5 star rated funds but somewhere forgot to control the risk on their portfolio. You don’t just need to learn the craft of money management but you also need to master it.

In India every Indian is a teacher, preacher, financial advisor and a doctor. Just ask any 5 colleagues about , “How to reduce weight? and you will get different answer from all sides” .

There is no athlete in this world without a coach. If performances matters you can’t do it with DIY model. You can take a few decisions on your own but cant paint the entire picture on your own. DIY is for a set of people who have high understanding of subject, great control over their decisions making, and a lot of passion and time.

Mistake #8 – Start-up ka bhoot

I remember when I and Manish started our business.

I asked Manish to continue with his job till we are not 100% confident about our venture. In Jan 2011 finally he decided to leave his job and got full time into blogging and writing. I have worked with a few entrepreneurs who jumped into business without any homework on personal finance front.

I always feel business is about taking risk, it is always like a free fall. My only request is, do not get overwhelmed by your business idea and do not mix your personal finance with your business journey. It’s not always compulsory to leave your well paying job and start a business because its “Cool”.

Final words

The year is coming to an end and it’s time to embrace your financial mistakes. In just a few moments the page will turn and we will step into the year 2018. Don’t be afraid of making mistakes but at the same time have courage to accept your mistakes and work on them.

Wealth creation is all about becoming honest with your own self in the area of money. If you wish you can share some of your mistakes of 2017 and fresh commitments you are ready to make in 2018.

Thank you, each one of you for being our partner in spreading financial awareness. There is a lot more coming up in the coming year and we look forward to your same love and partnership.

42 replies on this article “8 brutal mistakes investors make which destroys their financial life”

  1. Wow. Superb Article. Lot to learn from before making any financial decision and making investments. Lot to learn from these 8 mistakes. I seen people getting burnt with some of the investments previously and these principles would definitely help.

    1. Jagoinvestor says:

      Thanks for your comment Pratik Potnis .. Please keep sharing your views like this..

      Manish

  2. Rashi says:

    Thanks for sharing this insightful post.
    You are one of the best financial planning experts.
    I really love to read your post

    1. Jagoinvestor says:

      Thanks for your comment Rashi .. Please keep sharing your views like this..

      Manish

  3. Aman says:

    This article is very helpful… Thanks For Sharing

    1. Jagoinvestor says:

      Thanks for your comment Aman .. Please keep sharing your views like this..

      Manish

  4. Ankit Sahu says:

    Hi Nandish
    Thanks for sharing such a nice article. These 8 points are really helpful for realizing the mistakes we generally do in terms of our financial management. We must keep these 8 points in mind before allocating our funds anywhere.

    1. Jagoinvestor says:

      Glad to know that ~!

  5. Abanindra says:

    Hi Nandish, Hi Manish,

    Great article and all the 8 points are valid one but I personally like your Point#1, 6, 7 and 8. I also strongly believe these points and ensure that I doesn’t get in the trap of these mistakes.

  6. Indexia says:

    Thanks Manish,for your valuable suggestions.We are planning the same to implement it our business and felt good after reading most of the comments,since they have been benefitted from this article.

  7. Krishna Ghotekar says:

    Good article Manish; i am doing my financial planning with your team and for last more than 1.5 yrs have got good returns and most important an financial discipline. Cheers,

    1. Glad to hear that Krishna ! … However make sure you know that the great returns in last 1-2 yrs have been supported by great markets, the long term returns will average out to be more realistic !

      Manish

  8. Sravan says:

    In mistake no. 5 you say “the funds suggested were all shit.” – Want to know your opinion on what basis, since its only been 18 months (too small a period to judge?)

    mistake no.6 says “Mistake #6 – Getting attracted with FREE advice” which is essentially what this article is about

    1. Hi Sravan

      There are few funds which are not in top 100 . They dont suit a long term investor and are just sold because there is high commissions on that. So on that basis that statement was made.

      Also “Getting attached with FREE advice” is mainly for investment advice on whose basis one invests their hard earned money. This article is for your knowledge, there is no money or investment involved.

  9. Sumit says:

    Nice article. Keep it up.

    1. Thanks for your comment Sumit

  10. Sandip Gumtya says:

    Hi Manish,
    I cant reset my password for my acc. says some” password reset is not allowed for the user”. can you pl look into and provide some help.

    1. Hi Sandip

      We are getting the theme changes very soon. Once that happens, it will start working .. As of now there is a bug which is preventing password reset !

      Manish

  11. P. Das says:

    Mistakes may take please in any time in entire life, but to learn from the mistakes is a wise thing. An eye opening active. Thanks and request to upload more in future.

    1. Thanks for your comment P. Das

  12. Navneet Sharma says:

    Hi Nandish/ Manish,

    Great Article! and you guys are doing the awesome job. I would also like to plan my financial journey with JagoInvestor. I am investing in MFs in their direct schemes through MFUtiltiy.

    I am ok to pay the fee for financial planning but would like to invest in direct schemes. Please let me know if you guys can help.

    Best Regards,
    Navneet

    1. We plan to soon start that .. But its not there as of now .. You will see the updates on website once we start it .

      Manish

  13. Ankit Sahu says:

    I agree “Don’t be afraid of making mistakes but at the same time have courage to accept your mistakes and work on them”. Great information to go for. Thank You. 🙂

    1. Thanks for your comment Ankit Sahu

  14. vivek says:

    Hi ,
    I have start investing in Mutual Fund from Jan 2017 using SIP of 35K. Now its time to do portfolio checkup.
    So could you please advice me , Shall I continue with same fund or any changes are required.
    waiting for your reply.

    1. Please share your funds here so that we can quickly reply.. A detailed portfolio review is available for our clients only

      1. vivek says:

        could you please share the contact number.

        1. Please leave your details here.

  15. Vijay says:

    Great article, Nandish.
    Keep it up. looking forward for continued advise.

    1. Thanks for your comment Vijay

    2. sanjay gupta says:

      Great eye opening tips.
      Please do share in future too
      Sanjay Gupta

      1. Thanks for your comment sanjay gupta

  16. Chintan Shah says:

    Great article to reflect upon before starting a new year. Keep sharing such an awesome informative insight.

    1. Thanks for your comment Chintan Shah

  17. Subhajit Mandal says:

    I saw a great message in social media about free advice and I thought this is worth sharing with you guys.

    F (R) E E *R = Risk

    So, this essentially means, FREE inherently comes with risk. If you remove the risk (R), what is left is FEE, which you need to pay to get quality service. But of course, that doesn’t mean you will be fully free of risk.

    Thanks a lot for this nice article. I am an associate financial planner working in a startup in Bangalore and hugely inspired by Jagoinvestor. I idolize both Manish and Nandish. This blog has contributed largely towards advancement in my passion and also career.

    1. That was a great point ! .. thanks for sharing !

  18. R.Gopalswamy. says:

    I want to invest a small amount of₹60000/ for an year to get some returns. I know this seems to be a silly question to you.But I am frank that I don’t have much to invest.can you please suggest some avenue for this.Thanks.Awaiting your advice.

    R.Gopalswamy.

    1. Sir, if you want to invest for just 1 yr, then the options are limited to Fixed Deposit or some debt mutual fund (short term)

      Manish

  19. Vishesh says:

    Thanks for this article Nandish

    1. Thanks for your comment Vishesh

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