5 Investments Mistakes to avoid
I recently engaged with a potential client, a couple both of whom are doctors by profession. This post reflects the valuable life lessons they shared.
After engaging with them, I concluded that the errors they made should be shared with the world to prevent others from repeating such mistakes.
5 Investments Mistakes to avoid
# Income is not PERMANENT even during your working life
It is a common belief that our income will remain stable and consistently rise each year until we reach retirement age. However, it is important to recognize that this stability is contingent upon various factors, including our health, mental resilience, and our ability to navigate challenges within our profession. Successfully transforming these challenges into opportunities is crucial for ensuring that the industry or our employer continues to regard us as valuable assets rather than liabilities.
It is unfortunate that we establish our spending habits, financial goals, and future obligations, such as loan EMIs, based on the assumption that the future will remain as favorable as the present. This represents a significant initial error that many individuals tend to make.
# EMI means selling your future income
Many individuals, as previously noted, enter into long-term EMIs with the expectation that their income will remain stable over the next 10 to 20 years. However, they often lack a strategy for managing the loans or EMIs in the event of stagnant income or potential income loss.
That is the reason, it is always better to have a plan on plan to prepare for the loan and EMIs if such a situation arises. Sadly many have a huge confidence that they will work for the next 10-20 years like how they are working and earn a decent income in the future. Many of us don’t have answers to what if something went wrong.
# Rental Income is not the ONLY source of SECURED income
There is a common misconception that receiving a specific amount of rental income guarantees financial security. Unfortunately, many individuals neglect to assess the return on investment or the overall financial viability of their real estate ventures. While allocating a portion of one’s portfolio to real estate can be beneficial, relying excessively on rental yields as if one’s entire retirement hinges on this income is unwise.
If your rental income does not increase at a rate equal to or greater than the inflation rate, it may become inadequate to meet your retirement cash flow after a few years.
There are various ways to create a steady inflation-adjusted and risk-adjusted income stream from your financial assets but not from your real estate due to its illiquid nature.
# Borrowing to invest is a CRIME to your financial life
When I ask if people take out loans to invest in financial products, nearly all, around 99.99%, answer no. In contrast, when the question shifts to real estate, a substantial number of respondents confirm that they do borrow. This difference stems from a common belief that real estate reliably generates returns that exceed the costs of borrowing.
Many people take pride in purchasing real estate by committing to EMIs. However, most neglect to perform the essential analysis needed to assess whether the future return on investment will outpace the cost of borrowing. Unfortunately, this important evaluation is frequently ignored. If there is a guaranteed arbitrage opportunity that promises returns exceeding the borrowing costs, then such an investment could be warranted. Otherwise, one might unintentionally commit a crime to their financial health.
# Fancy colleges, universities, or courses are not a guarantee of your kids’ future
Imagining a promising future for one’s child is undoubtedly admirable. However, pursuing that vision without taking into account the child’s interests and abilities can result in financial disaster. Many parents today hope for their children to attend esteemed higher education institutions, whether locally or internationally. Yet, they often fail to justify the costs associated with such choices. Additionally, they frequently overlook the financial consequences of these major commitments, leading to the burden of hefty student loans. Ultimately, this responsibility for future loan repayments and financial obligations falls on their children.
Never be a scapegoat to EDUCATION MAFIA!!
There are endless such mistakes. But this post is restricted to a few of those mistakes that happened with those doctor couples.