Why Do People Lose Money?

Lack of fundamental knowledge

People generally invest their money without understanding the investment product and the risks associated with it. For example, people mostly invest in stocks to make quick money when they have little or no idea about what a stock is. They do not understand or know the company when they invest in its stock. They fail to understand that the valuations of a stock of a company depends upon factors like the quality of its management, its business model, its present earnings, the future growth prospects etc.

Investing on ‘hot tips’ by friends/neighbour/colleague

People often invest their money on ‘hot tips’ given by their friends, neighbours or colleagues rather than based on any strong research. It mostly happens when the markets are rising and everybody seems to be an expert. People follow the tips blindly without realizing that when the tide will turn, it can cost them very dear. And they find them sitting on the losses and dud investments. Internet is the other medium where there is lot of information is available freely and people rely on it without checking its authenticity, legitimacy and the reliability.

Mis-selling by institutions as well as individuals

Mis-selling of financial products by financial institutions like banks selling third party products on commission basis as well as individuals is quite rampant. In fact it has become a matter of grave concern as big scams keep unfolding now and then and the innocent people are taken for a ride. People are often sold wrong products and they are not told about the hidden charges or the risk associated with the products or often given the wrong information about the financial products.

Investing on impulse without having proper plan in place

One important factor responsible for the losses is that people often invest on impulse in haphazard manner without having any plan in place. For example traders lose money because they do not keep the stop-losses or targets for their trades. Similarly people do not have defined time horizons for their investments. For example people invest in equities or mutual funds and expect immediate returns. And if the markets go down, people either sell their good investments at loss or keep sitting with bad investments with mounting losses.

Be Smart & Intelligent With Your Money.

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Source: YourMoneyYourWay.in