5 Ways You Can Rectify Wrong Investment Decisions

Have you ever made investments, only to have second thoughts about it later? What did you do next? Accepted the fate and let the investment be, or found a way to bring your finances back to track? It is important to understand that we all make choices in our life, about which we have another opinion down the line. So, if you think you have made wrong investments, do not panic or sell the product immediately and go into losses.

You can correct a wrong financial decision about your investment by keeping patience and studying the scenario before taking a step. Below, we have discussed top 5 investments and how you can rectify your investment decisions regarding those.

1. Stocks

You must always choose the best stocks preferably from different sectors after analysing the company’s financial position. Compare the performance of a stock with its peers in an industry. Also, assess the industry’s position. Is it going strong, or through a bad phase? You can always take professional advice to understand the entry and exit levels.

So, how to assess investment decision in stocks?

• It is important to periodically asses the stocks’ performance and quality to know if they still match with your risk appetite.
• You can minimize risks by setting limits. When purchasing stocks, you can set limits on the exposure amount for a particular sector.
• Within these sectors as well, the exposure to particular stocks can be limited.
• Understand that stocks are useful as long-term investment and losses are possible in the short-term.
• If you wish to sell the stock, you must do it only if it has under-performed i.e. below the industry average. You have to wait for at least 3 years before you decide to liquidate a stock.

However, you can avoid losses by keeping a small portion, such as about 20% of the portfolio for market crashes. By doing so, you can buy quality stocks at lower prices. This tactic helps to average out the purchasing cost of stocks, especially if the stocks you hold have risen significantly. But, you must moderate this strategy, as keeping cash and endlessly waiting for opportunities can also provide lower returns.

2. Gold

To diversify your investment portfolio, gold investment is a good option. It helps to hedge against economic crisis and inflation. The price of gold goes through ups and downs, so you must wait for the prices to stabilize, if the gold rate reduces for a period. Gold being a long-term investment, short-term price fluctuations should not deter you.

So how do you go about investing in gold?

• Restrict investment into the yellow metal to 10%-15% of your portfolio.
• You can easily sell a part of the investment when the gold prices rise, if you have invested in this precious metal more than the prescribed limit.
• Many purchase gold jewellery , but this is not exactly an investment because jewellery has little resale value.

Gold jewellery can however help you with backup funds to resolve a monetary emergency. You can take a gold loan from a financial institution. You can get up to 75% of the gold’s current market value as funds. When it comes to borrowing, you cannot borrow against gold bars. Coins are eligible, only if these are bank purchased. But for investment, you must invest in gold bars and coins.

3. Mutual Fund

It is wiser to make decision for Mutual Funds after at least 2 years has passed since investment, while you should wait for at least 3 years in case of Equity Mutual Funds. If your Mutual Fund under-performs its peers and benchmark over the years, you should considering selling the Mutual Fund. This is why it is important to compare the returns from Mutual Fund with that of peers and its benchmark.

Take help of a fund manager to help evaluate Mutual Fund. Evaluate the Fund when there is a change in fund management strategy, a fund is acquired by another fund house, change in composition of the fund’s holding, or change of the fund manager. Also, consider the tax implications and exit load of the fund, before selling any.

4. Real Estate

When investing in real estate, do not make any hasty decisions. These investments are highly illiquid as you cannot enter and exit without fulfilling a few criteria. The stamp duty charges are between 5% and 15%, not to forget GST, if you have invested in an under-construction property. You also have to take into account the capital gains taxes.

Ideally it takes at least 5 years for real estate investments to provide gains, unless you generate income from rent or lease money. When intending to sell a real estate property, consult a professional for best advice.

You can also use a self-owned property to make immediate funds available. This can be done by taking a loan against property from a bank or NBFC. Here, you do not have to sell the property, but keep the investment intact, yet get funds based on the current market value of the property.

5. Insurance

There are times when people invest in wrong insurance policy, and wish to rectify this mistake. If you have done the same, you can use the free-look period to cancel the insurance policy. The grace period for cancelling the policy is for 15 days after receiving your policy document. You can contact the insurer and request to cancel the policy within this period. This is applicable to all policies for life and health, with tenure of at least 3 years.

But what if you find it out quite later that the policy is not the right one for you?

• In this case you can surrender the policy and be content with whatever returns it generates over the period till surrender.
• However, you must choose insurance plans carefully as these are long-term investment products and have premature redemption penalties and lock-in periods.
• It is advisable to not surrender the policy in the initial years, or you may incur losses. If you do not want to keep paying premiums, you can make it paid-up.
• If you surrender and get back the amount, you can purchase term plans. These are cheaper than endowment life insurance plans .

If you have a Unit Linked Insurance Plan (ULIP) and it ends up with too much equity portion, then it can ruin the returns. However, you can use the auto-rebalance feature to rebalance the portfolio and manage the allocation the way you want.

Final Thoughts

Even if you make wrong investments, getting back on track is not that difficult. With little patience, analysis of existing investment portfolio, knowledge about the investment, and tracking of recent scenario of an investment tool, you can solve all your financial woes.