We invest to earn money, but sometimes the urge to earn more returns can have consequences. Often during bull markets, investors are tempted to take more risk to earn a little extra return. ‘Sharma ji ne kitna return banaya’ influences investment decision rather than the investor’s risk return profile. We spoke to a few advisors to know typically, what problems investors face when they chase returns.
Harshavardhan Bhusari, Fin Pals, Pune
Harshavardhan recollects the infra craze of 2008. The infrastructure sector had been booming on expectation of government spending. Looking at the past performance many investors decided to invest their money in the category, without understanding the risks. In the crash that followed many investors burned their hands. Some of them only recovered their money in the 2014 bull rally.
Another common occurrence is investors trading in stock markets with the hope of earning quick money. Often these investors have limited understanding of equities and they trade based on stock tips received from broking companies. While the broking firms make commissions, these investors quite often incur a loss.
Ankit Agarwal of A. C. Agarwal Share Brokers, Vadodara
According to Ankit, investors become more aggressive during bull markets. Instead of investing through an STP to mitigate risk, investors opt for lumpsum investment in equity and disregard the risk. Recently, investors who invested lumpsum in 2017 saw marginal gains on their investments over the next year.
Akshay Tiwari, Next Portfolio, Delhi
Akshay talks about a client who forced him to move his investments from large cap to mid and small cap in 2016 disregarding his financial plan. Seeing the strong performance in the mid and small cap segment, the investor without understanding his risk appetite switched his large cap allocation. The investor greatly regretted his decision in 2017 when large caps rallied and mid and small caps corrected.
