Exit your investment if it is a mistake

Paritosh (39) works as a programmer for a mid-sized IT firm in Pune and earns a decent income. Despite being well read about various investment options, he prefers investing in fixed and guaranteed return products as they provide comfort and peace of mind. He recalls the period between 2007 and early 2009 when he was heavily invested in shares and infrastructure sector mutual funds. He made good returns from 2007 till early 2008 which made him invest more in stocks, just on the basis of tips and price movements. From early 2008, the stock market kept on falling and within six months he was staring at a loss of nearly 45% on his principal. Fearing that there was no end to the market falling, he exited the investments with a huge loss and decided never to invest in equity again.

One can conclude that the mistake was not about investing in equity, but going overboard in one asset class without understanding the risks and investing on the basis of tips and past returns only. The better way to invest is to first establish one's short- and long-term goals, decide on the risk you are willing to take for long-term goals and allocate money for short-term goals in fixed income and safe securities, investing in diversified MF rather than unknown stocks or sector funds.

Neil (44) invested in a residential property in Pune in 2014. Most of his colleagues had more than one property and he felt that was the right thing to do. He finally got possession of his property in mid-2017. Over the last three years his property price has not appreciated, but he still has to repay the home loan. He is considering selling the property now so he can invest in a better asset for retirement purpose as he does not see property fetching better returns in the near future. Neil could have consulted an advisor or thought through the pros and cons of investing a huge amount in an illiquid asset. Most financial mistakes are either due to ignorance, casual attitude towards one's finances or emotionally driven. Peer pressure also has a role to play like in the case of Neil.

Sunanda (33) is single and lives in her own apartment in Bengaluru. She is a designer and spends nearly 70% of her income towards paying off her home, car and personal loans and credit card outstanding. The rest goes towards her living expenses, thereby, not leaving anything for saving. She does not have any emergency fund and relies entirely on her credit card. In fact, her credit card outstanding has ballooned due to the payment of only 5% of the outstanding, while carrying forward the balance, on which she pays interest. If she does not seriously look into this matter now, it will increasingly become difficult to service her debt.

I am yet to meet a person who has not had his/her share of financial mistakes. It's not how we make financial mistakes, but how we respond to and correct them that matters. The first step to correcting the mistake is to admit that we have gone wrong. Many investors live in a permanent state of denial and, hence, are unable to take a decision to correct the same and move forward. This hampers their finances. The second step is to find out the exit options or process to correct the same. Define a time period so you remain focussed on improving your situation within a given time frame. If it is investments that you need to exit, then find out the alternative options which will help meet your timebound goals with the risk that you can afford to take. Take the help of a professional wherever necessary so you don't stumble again, but move forward.

The writer is founder of Proficient Financial Planners