Investment Shastra

What sets you up for failure in investing?

The most important thing for success in investing, is ‘Setting Yourself Up For Success.’

This is crucial, as most people set themselves up for failure! Because, they think ‘Successful investing means doubling or trebling money really fast.’ Even a 18% returns means money doubles in 4 years. Such high returns means taking a pretty big risk. The usual response is, “I understand; no risks, no gains. I’ll put only a small portion, so I can handle, if there’s a loss.”

Now, look at what are the underlying assumptions or beliefs here

  1. ‘I am taking a risk, so I must make very large returns’:  Means taking high risks leads to (or in fact causes) very high returns. This is completely wrong, it does not! While we celebrate a few ‘risk-takers’, there are thousands who took risk & lost, and are unknown. Also the few who succeeded actually did so many things in addition to taking risks, and were perhaps also helped by lady luck. Investing requires taking risk; it’s necessary, but it’s not sufficient. Much more has to be done to earn high returns.
  2. ‘It’s smart to be prepared to lose money’: This is to prevent remorse later, if things go wrong. The solution often used is ‘(a) Invest only a small portion of the total saving available for investing, and since one is ready to lose it all, (b) Take big bets to win big. In fact, this approach increases the chances of losing money, because you take even higher risk. However, the bigger loss is that one plays it very safe with the rest of the money, and ends-up not even earning inflation-beating returns on it.

Both these beliefs can set you up for failure in investing.

Watch the video on this article.

Read the next article to understand: ‘How to plan what to achieve through investing?’

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