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Emotions Over Investments: Buy Low Sell High

“Buy low, sell high.” It’s the golden rule of being a successful investor. You’ve heard this rule too many times, and you know it makes sense. Yet time and again, you find yourself doing the exact opposite. Most of us allow our emotions to play a big role the way we invest.

As we are unable to control our emotions we make mistakes, Emotions such as fear and greed. Fear of losing money holds back even those investors who have bright possibilities ahead of them. On the other hand, greed makes them make decisions that might make them lose more money they can make. Let’s discuss why these emotions come in between, and what we can do to stay away from such emotions.

Emotions Over Investments: Buy Low Sell High

Social burden

We are social animals and the social burden always is always present on our shoulders. A good house, a secure future for children, a comfortable lifestyle for spouse and parents, a smooth retired life, and the need for social status are the needs that make us greedy. The lack of any of the above may cause an inferiority complex or fear in us.

This inspires us to make the wrong decisions or wrong investments.

Confusion

The fear of losing everything and the greed of achieving everything create a conflict and confuse us at times of making investments. As we know Investment is all about putting the right amount of money into the right instruments at the right time. Let’s take a simple example.

 What do we do in the case of the stock market?

“If the stock market goes up we don’t buy because of fear it may crash, if the market goes up again we wait & don’t buy because of fear the market may crash.

Instead of buying at low, we are waiting, and suddenly we find everybody is getting into the market like dot com companies, we lose control as we have emotion that we will be left behind and instead of buying at low we will end up buying at high. After some time, the market crashes, and instead of buying at low due to fear of losing we end up selling.”

Market Cycle

So we do exactly the opposite which is foolishness caused by our emotions. Believe me, this emotion is the culprit for leaving us behind.

Burning Desires

Everyone wishes to have a luxurious car or a big bungalow as early as possible. These desires force us to invest in risky investments such as equities in the hope of getting higher returns quickly.

These shares may give returns that are higher than other instruments but if you make losses that are also terrible.

Following Other People

Many people think that following a successful investor like “warren buffett” will help. However, you need to keep in mind that every individual has different risk-taking capabilities, goals, and wants. Investment done by others may not be the right investment for you.

A successful investor may be able to cope up with loss but you may not, which may cause strong disappointment and fear. You may take advice from professionals but blindly following anybody is not a good idea.

FAQs

How do emotions influence investment decisions?

Feelings like anxiety and desire frequently lead investors to make illogical investment choices. Fear may cause investors to sell quickly when the market is falling, while greed can lead to hasty purchases when the market is rising.

What is the significance of “buy low, sell high” in investing?

The basic concept of “buy low, sell high” stresses the importance of buying assets at a low price and then selling them when their value increases. The goal is to optimize profits by taking advantage of market inefficiencies.

How can investors overcome emotional biases?

Recognizing emotional biases is the first step for investors to overcome them, followed by implementing strategies like setting investment goals, diversifying portfolios, and maintaining a long-term view. Consulting with financial experts can also offer valuable counsel.

Why is buying low important for investors?

Purchasing assets at a lower cost enables investors to attain discounted prices and possibly achieve greater returns in the future with improving market conditions. It also diminishes the chances of paying too much for assets and enhances the safety buffer in investment choices.

What are some practical tips for selling high?

When trying to sell at a high price, investors should concentrate on recognizing assets that are overpriced by using fundamental analysis and market trends. Establishing precise exit criteria and adhering to a planned selling approach can prevent investors from making emotional decisions and successfully secure profits.

Why You Should Avoid Personal Loans

Personal loans can seem like an attractive option when you’re facing financial challenges or considering a major purchase. In today’s world income is limited but desires are endless. This desire often inspires us to take additional debt using credit cards or personal loans. personal loans can often lead to financial strain and should be approached with caution.

I advise you not to take any personal loan unless it is an extreme situation. Keep a personal loan as your last option to avail your immediate cash requirement.

Personal loans can be used for any purpose including medical expenses, marriage expenses, home improvement, purchasing household items or to pay your credit card debt. The best part is that you need not inform the bank about the purpose of taking a personal loan. In this way, personal loans are all-purpose loans.

In a home loan, car loan, or education loan you have to prove that you will be using this amount for said purpose only. A personal loan has one additional advantage the processing time of this loan is faster compared to any other loan. Most banks do not ask for any guarantor or any security deposit for this type of loan.

Due to this you might be thinking that this is the best loan option but believe me this is the worst loan option. Let’s discuss in detail why you should think of a personal loan as the last option.

personal loans

Why You Should Avoid Personal Loans

High-Interest Rates 

The interest rate charged by banks under personal loans is 14-18%.

Let’s understand the facts by taking an example. Mr.X has an urgent need and he is taking a personal loan of 5,00,000 Rs/- an interest rate of 17% for 5 years. The effective EMI for this loan will be 12,426 Rs/-.

This loan will cost around 50% additional money as interest – 2, 45,560 Rs/-

Personal Loan Example

Personal Loan Example

This can result in significant interest charges over the life of the loan, making it more expensive in the long run.

Prepayment Penalty

Most lenders don’t allow part payment of loans. This means you end up paying the loan for the entire tenure of the loan. It can work out quite expensive since your initial installments go towards interest payments.  Some banks allow prepayment but they keep very high penalties for the prepayment of the loan.

Hidden Charges

Many banks keep certain hidden charges which make this loan more costly. Most of the borrowers forget to read the offer document/terms and conditions and may end up paying more.

Credit Score Impact

Obtaining a personal loan can harm your credit score, particularly if you already have a high debt-to-income ratio or a track record of tardy payments. Failing to make payments on time or defaulting on the loan can worsen your credit score.

Possibility of Entering a Cycle of Debt

Individuals who use personal loans to pay for their expenses could become stuck in a pattern of debt, continuously borrowing to fulfill their financial responsibilities. This could result in a negative cycle of mounting debt and financial strain.

It is usually advisable to stay away from debt but if you have a pressing need for cash & you can afford to repay it in a short period of time it is advisable to take a loan against assets like gold or property compared to a personal loan.

Lastly, decide if you can stay away from any loan. While this loan may be useful in certain instances like medical emergencies, it doesn’t make sense if you are using it on your vacations or any other fun-making expense.

FAQs

  1. Are personal loans ever a good idea?

    Personal loans can be a viable option in certain situations, such as consolidating high-interest debt or funding a necessary expense. However, it’s essential to carefully consider the terms and potential impact on your financial health.

  2. How can I qualify for a personal loan with favorable terms?

    To qualify for a personal loan with favorable terms, you’ll typically need a strong credit history, stable income, and a low debt-to-income ratio. Shopping around and comparing offers from multiple lenders can also help you secure the best possible terms.

  3. What should I do if I can’t afford to repay my personal loan?

    If you’re struggling to repay a personal loan, contact your lender immediately to discuss your options. They may be willing to work with you to modify your repayment plan or offer alternative solutions.

  4. What are the alternatives to personal loans for financing major purchases?

    Depending on your financial situation, alternatives to personal loans may include using savings, taking advantage of low-interest credit options, or exploring financing options offered by the seller, such as installment plans or store credit cards.

  5. How can I avoid falling into a cycle of debt with personal loans?

    To avoid falling into a cycle of debt, it’s essential to borrow responsibly and only take out loans for necessary expenses or investments. Additionally, focusing on building an emergency fund and improving your financial literacy can help you avoid relying on loans in the future.

How Multiple Home Loans Can Reduce the Tax Load?

In 2016, Anandbabu took taken home loan and purchased his dream home in Ahmedabad. The home loan amount was Rs 7 lakh for 15 years & EMI was Rs 7,200. However, two years later he was transferred to Surat.

Instead of renting a home in Surat, Anandbabu has bought another house, He could have sold the old house to purchase a new house but Anandbabu has decided to go for another home loan of Rs 15 lakh for 20 years, for which EMI is about Rs.16,550.

Now Anandbabu has to pay a total EMI of 23,750 Rs/-every month, increasing floating interest rates are making it difficult to pay this hefty EMI amount for both home loans. Anandbabu is in the highest tax bracket and has to pay 30% tax. Which makes it further difficult to save enough to pay both EMIs. Anandbabu was not fully aware of section 24 of income tax. Especially about the fact that his tax load can be reduced by availing deduction facility on a home loan in case of a second home. Let’s understand section 24 income tax benefits of home loans.

Multiple home loan tax benefits

How Multiple Home Loans Can Reduce the Tax Load?

Multiple home loans refer to the scenario where an individual holds more than one housing loan simultaneously. These loans could be for purchasing different properties, constructing homes, or renovating existing ones. The primary motive behind availing multiple home loans often revolves around investment diversification and wealth creation.

Home loan repayment has two components principle and interest and both of these components are treated differently for tax calculation purposes.

Principle Component – 80C (1.5 Lakh Limit)

In India, taxpayers can claim tax deductions on the principal amount of their home loan repayments as per Section 80C of the Income Tax Act. According to this provision, people can deduct up to INR 1.5 lakh per year for the principal repayment of their home loans.

Interest Component – Section 24 (2 Lakh Limit)

Additionally, the interest paid on home loans is eligible for tax benefits under Section 24(b) of the Income Tax Act. Homeowners can claim deductions of up to INR 2 lakh per annum on the interest component of their home loan repayments, provided the property is self-occupied. For properties that are let out, there is no upper limit on the interest deduction.

Tax Implications of Multiple Home Loans

Deductions under Section 80C

Individuals can avail deductions under Section 80C for the principal repayment of each loan when they have multiple home loans. This enables borrowers to make the most of their tax advantages by diversifying their investments among a number of properties.

Tax Deductions under Section 24(b)

Likewise, the interest incurred on every mortgage can be deducted for taxes according to Section 24(b). By utilizing this benefit on various properties, people can greatly lower their taxable income and total tax responsibility.

Impact on Capital Gains Tax

Apart from the advantages mentioned earlier, having multiple properties can also assist in reducing capital gains tax responsibilities. Individuals are eligible for exemptions on capital gains from selling a property by reinvesting the money in several residential properties, according to Section 54 of the Income Tax Act.

By strategically taking advantage of tax deductions available for multiple home loans, people can effectively reduce the amount of taxes they owe. Optimizing the distribution of principal and interest repayments among different properties can maximize tax advantages.

Although several home loans come with substantial tax benefits, borrowers should be cautious of the risks involved. These consist of possible limitations on cash flow, changing interest rates, and regulatory adjustments that could affect the real estate industry.

What is required to be Successful in Business?

Many people dream of starting their own business but they never do so because they’re afraid of failing. It is known face that 9 out of 10 businesses fail in the first 5 years of starting the business.

So, the question that pops up in everyone’s mind is:-

Business Start

Success in business is a multifaceted endeavor that demands a combination of skills, strategies, and characteristics. From vision and goal setting to effective communication, building a strong team, and embracing innovation, there are several key elements that contribute to achieving success in the business world.

This may be due to a lack of experience, lack of cash, knowledge, or skills required to run the business.

So, let’s discuss in detail what is required to be successful in business.

successful in Business

What is required to be Successful in Business?

#1 The Mission

The most important thing for the business is its mission; many people start a business only to make money. Just to make money is not a strong mission. Money alone does not provide enough fire, drive, or desire to run the business.

One should have a strong and clear mission for the business, as the mission guides the actions of the organization, spells out its overall goal, provides a path, and helps in making decisions. It should provide “the framework or context within which the company’s strategies are formulated.

When a business gets big and it forgets its mission or the mission it was created for is no longer needed, the business begins to die.

#2 Leadership

You must have leadership qualities to run a business. A leader’s roles are a combination of visionary, cheerleader, and boss.

Business Leader

As a visionary, the leader must keep his or her focus on the corporate mission. As a cheerleader, he or she must inspire the team as it works together towards that mission as well as herald the successes along the way. As the boss, he or she must be able to take the tough calls regarding issues that distract the team from achieving the mission. The unique ability to take decisive action while maintaining focus on the ultimate mission is what defines a true leader.

With the right mission, team, and leader you are well on your way to building a strong business.

#3 Team

To succeed, a business must have the proper expertise in key areas. An individual may not have expertise in every area so he or she needs a group of people to formulate a successful business.

Team

Extraordinary team members with a good level of expertise will bring success to business. Choose the best team member to bring electrifying success.

#4 Cash Flow management

Cash flow management is a fundamental and essential skill if a person truly wants to be successful in the business. Cash flow is to a business what blood is to the human body. Nothing can impact a business more dramatically than not being able to make payroll at the end of the month.

Cash Flow

A good cash flow manager reviews his or her cash position daily, looking at cash sources and needs for the next week, month, and quarter. This allows him or her to plan for any large cash need before it becomes a cash crisis.

Effective cash flow management is critical for the success of any business, ensuring steady operations and growth. Leveraging expert accounting for SaaS companies can provide tailored insights into subscription revenue, churn, and recurring billing. This specialized expertise helps optimize cash flow, improve financial planning, and drive long-term profitability.

Business success often relies on smart financial management, and obtaining a free business credit report is key. It helps you monitor your company’s credit health, identify potential issues, and build credibility with lenders and partners.

Financial management is a continuous process many people lose sight of finance management when a business grows or becomes successful. This is a major cause of business failure. Proper finance management (and therefore expense management) is crucial to the ongoing success of any business.

#5 Communication management

One of the most important points for a successful business is communication management. The better you are at communication more and more people you will communicate to, thus increasing your chances of building more customer base.

Good Communicator

Most communication is directed towards external communication, but a business’s internal communication is also vitally important. Some examples of each are:

External Communication

  • Sales
  • Marketing
  • Customer service
  • To investors
  • Public relations

Internal Communication

  • Sharing wins and successes with your entire team
  • Regular meetings with employees
  • Regular communication with advisors
  • Human Resource Policies

Be a good communicator to be a good business man.

#6 People Management

Managing people effectively to release their full potential and enable them to succeed is the most important, and most difficult, job for a businessman. You must lead, motivate, inspire, and encourage them. Sometimes you will have to hire, fire, discipline, or evaluate employees.

Remember For any business, a major capital investment is an investment in people – ‘human capital’.

#7 System management

Every business, whether large or small, needs to have systems in place to enable it to conduct its day-to-day activities. Even a sole proprietor has to wear different hats to conduct his or her business. In essence, the sole proprietor is all systems in one.

For any business to grow, individuals must be accountable for each of the systems and a general owner / director must be in charge of making sure all the systems operate to their highest capacity.

The system required by every business:-

  • Daily office operation
  • Product development
  • Inventory
  • Order processing
  • Billing
  • Accounts
  • Marketing
  • Human Resources

#8 Legal management

In order to be successful in business one must know the legal aspects of the business. It is required to protect your business from legal matters which may happen.

Legal issues may surface in almost every facet of a business so you must know law or you must have experts to help you.

Some of the legal areas where you should focus on are:-

  • Consumer Law
  • Labor Law
  • Tax Law
  • Regulatory Compliance
  • Protecting Intellectual property

#9 Product Management 

The company’s product, which the customer ultimately buys from the business, is also an important aspect of a successful business. It could be a tangible item such as clothes or an intangible item such as consulting services.

Product management is to keep a close eye on the market (customer) and keep on modifying products as per customer needs. So product management is required by companies who need profit & success.

#10 Market

The success of your business depends on the market where you actually sell your product or services. If you are selling products where there is not enough demand (buyer) then you are trying to swim without water. So, market knowledge is equally important for the success of the business.

Conclusion

Success in business requires a holistic approach that encompasses vision, strategy, execution, and continuous improvement. By focusing on key elements such as vision and goal setting, effective communication, building a strong team, and fostering innovation, businesses can achieve sustainable growth and make a positive impact on society.