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Tuesday, April 12, 2016

10 financial mistakes you will regret at age 50

Waiting too long to invest, dipping into retirement savings and splurging on needless items are some of the common mistakes that young people make. We tell you how not to make mistakes that you will regret 15-20 years from now. 1. Delay investing till income is higher For young earners, spending is more important than saving. Many young earners don't start investing because their income is low. This is a fallacy. For a young investor, the smallness of the investment is more than made up by the long time available for the money to grow. The magic of compounding ensures that even a small sum grows into a gargantuan amount over the long term. The investment can be scaled up as the income grows in the coming years. 2. Taking too little risk with investments Prakriti Ojha, 31 years, Mumbai Income: Rs 1.1 lakh a month Equity exposure: NilShe is young, earns well and has a steady job. Yet she invests primarily in PPF and bank deposits, something she may regret later in life.Rebalancing is necessary because the returns from different asset classes can vary. The rebalancing decision is not easy because it takes a contrarian call. Few investors would have reduced their equity exposure when the markets were making new highs between 2004 and 2007. 3. Not following an asset allocation Not many investors believe in rebalancing. Rebalancing is necessary because the returns from different asset classes can vary. The rebalancing decision is not easy because it takes a contrarian call. 4. Getting lured by dubious schemes Greed is a very effective driver of investments. The fantastic returns promised by the fraudsters should have been a red flag for investors. The other basic check is to see whether the scheme is approved by the regulator. 5. Investing in stocks for short term Ankur Sachdeva, 36 years, Del Lost: Rs 11.6 lakh in Stock Guru scam in 2012 He was initially skeptical and invested Rs 2 lakh in the Stock Guru scheme. When he got back Rs 40,000 in a month, he put in Rs 10 lakh more but got nothing back. 6. Dipping into PF account Radhika Sachdeva, 35 years, Gurgaon Job changes: Four in the past 12 years PF Balance: Rs 15 lakh Despite changing four jobs in the past 12 years, she has never withdrawn her PF. This will help her in retirement. 7. Treating insurance as investment The cardinal rule is not to mix insurance with investment. You can also convert an insurance policy into a paid-up plan after three years. The policy will continue with a reduced sum assured but you won't have to pay the premiums any further. The paid-up value is given to the policyholder on maturity. The policy turns into a paid-up plan if premiums are not paid for two consecutive years. 8. Splurging on items you don't need Amit Acharya, 45 years, Raipur Premium paid: Rs 1.5 lakh per annum Returns expected: 6% He invested in life insurance policies on the advice of his father. The high premium of these plans prevent investing in other lucrative avenues. 9. Taking too little life and medical insurance Hemant Kumar, 39 years, Noida Income: Rs 22 lakh per annum Loans: Rs 25 lakh Insurance cover Rs 6 lakh The sole earner in the family, Kumar needs an insurance cover of at least Rs 1-2 crore. That won't come cheap when he crosses 40. 10. Not setting up an emergency fund Experts say one should have at least 2-6 months of expenses in an emergency fund, but this can vary depending on whether your spouse also works or you have a secure job. The best option is a sweep-in bank account or short-term debt funds.

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