Warren Buffett once said, “The first rule of investment is don't lose [money]. And the second rule of investment is don't forget the first rule.”
This rule applies to everyone and can prove to be really dangerous for HNIs.
High-net-worth individuals are those who usually own at least $1 million in liquid financial assets. Given their asset valuation, HNI investors are also the ones who are highly likely to find unique avenues to invest their money. While many have specialized assistance when it comes to investment, mistakes are not uncommon.
Here are a few such mistakes that HNIs make and ways to avoid them.
1. Non-diversifying portfolio
When investing large sums of money, it is natural for investors to seek highly secure avenues. In seeking security, many HNIs end up choosing concentrated portfolios or sticking to ultra-traditional ways of investing.
Diversifying a portfolio holds more importance for HNIs than any other investors. Diversification secures the funds and offers a buffer against market ups and downs. It is crucial to distribute wealth not just across sectors and asset classes but also across geographies to prevent any losses resulting from domestic turmoil.
At ShiftAltCap, we offer widely diversified investment stacks that financial experts actively manage to stay ahead of market fluctuations and reduce risks and losses.
2. Investing heavily in developing countries
Developing countries are a harboring ground of opportunities and upcoming industries. They tend to show steep growth graphs and promise a high return on investments. Due to an opportunistic landscape, foreign investment is in high demand in developing economies.
However, it is essential to assess the market dependencies of the promised growth. Many sectors in developing countries are dependent on their international ties with developed economies.
Hence, any fluctuations in developed countries and the investments slide down at an alarming rate. To avoid such untimely losses and the constant risk of market downturns, HNIs must invest a large chunk of their wealth in developed economies.
While it is okay to pour in some investment in developing economies to test the grounds, investing huge sums is a risk like no other.
If you need more proof for investing in developed economies, then check out ShiftAltCap’s two highly exponential investments stacks in US markets that earn up to 30% YoY returns with extremely low risk.
3. Investing without an exit strategy
The conventional belief among investors is that if one wants to earn higher returns with low risks, then it is wise to lock in funds for more extended periods. Hence, exit strategies take a backseat and are not on the priority checklists of most HNIs.
This belief makes a lot of investors averse to exit strategies and makes them stick around in hopes that the market will level up and losses will be recovered shortly. While this can be true for some asset classes, it might not be true for all investments.
Sticking around with loss-making investments may not only subject the wealth to more losses but will accrue opportunity costs of investing that money in other profit-making investments.
Behavioral finance calls this a "cognitive error." Take, for example, an investor who declines to exit a mutual fund with a high-default risk housing finance company simply because he wanted to recover the losses and avoid the associated capital gains tax, only to take a huge hit when the risk materialized.
4. Weak statistical analysis or emotional decisions
Emotional decisions influenced by a personal inclination towards an industry or a particular asset class will undoubtedly take investors in the wrong direction. For example, HNI psyche or impulses can drive them to invest in a share at market tops. Investors must never attach a personal value to their investments.
An objective view is necessary to assess risks and focus on the bigger picture. Leading the investments with strong statistical analysis while remaining focused on the investing goals is a must. At ShiftAltCap, your portfolio is thoroughly monitored and vetted by our team of investment experts and goes through multiple evaluations, done objectively through several expert eyes.
5. Ignoring the potential of innovations
Innovations guide how the future gets shaped. Innovations often disrupt the monotony and existing status quo. It is safe to say that even the world of investments is not spared by disruptive innovations.
When investing higher capital, it is important to stay up-to-date with global changes and innovations. For HNI investors, this is an absolute non-negotiable. Staying at par with the ever-changing world around is a full-proof strategy to secure your investments and earn lucrative returns.
New technologies like BigTech have returned, on average, 15x in value compared to the 5x returned by more traditional companies.
For those HNIs, who are still hesitant to venture into the world of innovations, our #AllEssentials thesis is just the thing for you. Our team actively monitors and recommends investments in consumer staples and cash-rich companies like Google and Microsoft.
6. Fence sitting
Investors may resort to fence-sitting when the markets are going topsy-turvy or when they do not understand the assets and investments. Some may even hold back investing in hopes of finding the “right time” to deploy the money. For some investors, this passivity transforms into hyper-activity when the FOMO (fear of missing out) kicks in.
Fence sitting never pays off, nor do impulsive investment decisions. The best investment strategy, thus, is to remain proactive with market evaluations and statistical analysis.
For investors overwhelmed with the mention of ‘proactive,’ ShiftAltCap is the place for you. Our pre-built stacks are monitored with rigorous analysis to earn consistent returns with better than average resistance to market headwinds.
Wondering how to start your investment journey? Get in touch with us, and let us solve your doubts over a cup of coffee!
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