Investors Mindset Across Various Asset Classes

Even though the ultimate goal of investing is to earn “profit” investors reaction to various asset classes are unique. This is due to psychological behaviour of the investor’s mindset.

In investing “Risk Taking Capacity” plays a distinct role. Broadly investors are classified as-

  • Conservative Investors (who can’t take risk)
  • Moderate Investors(Can bear risk to some extent)
  • Aggressive Investors(Highly risk-taking capability with an aim to earn higher returns)

Investors Mindset over Bank F.D’s, Gold, Stock Market, Mutual Fund and Real Estate

  • Bank Fixed Deposits– Generally Bank F.D’s are considered as “safer instruments” as they offer “guaranteed returns”. Even though the investors knows bank fixed deposits can’t beat “inflation” they treat it as a safer return giving product with “no risk”

Here investors focus is on “safer returns” even though it doesn’t beat inflation.

  • Gold– Traditionally Indians prefer Gold as a safe hedging product in uncertain times. While women prefer gold as an “asset” to be followed for generations at the same time they treat gold as an pledging instrument(taking loan by pledging gold ornaments).

As a result Indians prefer to buy gold when ever the price “dips”. They prefer to buy more gold where there is a huge price drop in gold rate.

Even though gold prices fall even after their purchase, they don’t irritates. As per investors mindset gold is an asset for generations, so they don’t worry on the daily price fluctuations, instead they accumulate more when there is a huge dip in the gold prices which is exact opposite to investors mindset in stock market.

  • Stock Market– Generally investors enter the stock market with a view to hold for long term. But due to price fluctuations in shares they tumbles and exit the market in a hurry. This is exactly opposite to the investors mindset of gold investing.

Even though investors knows stock market rewards in the long term, investors frightened on the volatility and book looses with a haste.

Another typical mindset noticed in stock market investing is- They book profits if they earn decent returns in the short term(not waiting for the long term) or they sell their shares as there is break-even(no profit, no loss)or they book notional loss expecting the markets would fall further.

While Gold will be accumulated in dips, same investors tumbles in stock market investing. This is due to psychological behavior over asset classes.

  • Mutual Funds– Like wise in stock market investors invests in mutual funds with a long term view. Generally they do sip(systematic investment plan)to manage volatility. But when ever there is a market crash like wise in stock market investors tumbles and ceases sips and exit the market.

Investors knows that sips has the capability to manage volatility in the long-run, they don’t remind this “basic investing principle” when the market enters bear territory. There are hardly 1-2% of the investors who hold sips in the market correction. This is one type of investor mindset which lags returns in mutual funds.

  • Real Estate– Real estate is another asset class which rewards investors handsomely. So generally people loves real estate and invests in it with over-confidence.What they are forgetting is gold, bank f.d, stock market, mutual fund are highly liquid, they can encash at any point of time when they needed liquid cash. But in real estate is not possible!

It will takes months, years(some times)to sell your real estate property at a fair price. Investors invests in real estate seeing on the huge return generated so far, but they are forgetting “illiquid nature”. They can’t encash fair price on the real estate instantly. It will take months to settle real estate deals while gold, bank f.d, mutual fund units, shares can be encashed at any point of time. They are highly liquid.

so as per saying- don’t put all eggs in one basket. Diversify your investments across various asset classes. Again investors mindset plays a key role in generating returns.

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