6 Common Investing Mistakes Beginners Make
In this video, we will take a look at 6 most common investing mistakes you need to avoid when investing in the US stock markets. So, let’s dive in!
Mistake 1: Focusing on picking certain stocks
First, focusing on picking certain stocks is one of the key mistakes you should avoid when investing in the US markets. Your investment portfolio should be tailored to your specific risk profile and should consist of an appropriate mix of stocks and ETFs. Ideally, if you are new to the US markets, you would want to start with an ETF-only portfolio.
Mistake 2: Investing in a stock just because it is trending
The second mistake to avoid is investing in a stock just because it is trending. Do not invest in the stocks just because they are in the news or because you feel that you have missed out on a stock’s rally and that you cannot afford to lose out any more. It’s important to remember that you don’t really invest in a stock but actually the business that is underlying the company. Similarly, never invest based on hot stock tips or advice on social media.
Mistake 3: Trying to time the market
So, the third mistake to avoid is trying to time the market. Buying a stock when the price is at the lowest and selling it when it is at the highest is something everyone would like to do, even I would. However, remember that even the most successful investors are not able to time the markets. Rather than trying to time the market, it’s important to invest consistently and with a longer time horizon especially when starting off in a new market like the US.
Mistake 4: Ignoring tax implications
Another mistake to avoid is ignoring tax implications. There is a capital gains tax on shares purchased in the US from India. You will not be taxed in the US, however there are tax liabilities in India. When investing in stocks, if you hold them for more than 24 months, the taxation rate in India is at 20% with indexation benefit. If you invest for less than 24 months, it’s considered as short-term capital gain and is taxed as per your income tax slab. For ETFs the long-term threshold is 36 months. Dividends are taxed at 25% and the tax is withheld in the US. What you can do is you can take credit for this dividend tax paid when filing for taxes in India.
Mistake 5: Not understanding forex rates
Another mistake to avoid is not understanding foreign exchange or forex rates. When you are transferring Indian funds or rupees to your brokerage account, the exchange rate matters. Because you are converting rupees to dollars. Banks will charge you a foreign exchange conversion fee. And hence, it’s advisable to use a platform say Vested that has tie-ups with banks to provide you favourable exchange rates and a much lower markup fee.
Mistake 6: Liberalized Remittance Scheme Regulations
Finally, you should not ignore the Liberalized Remittance Scheme regulations or the LRS regulations when investing in the US markets from India. LRS is what governs how much money an Indian can send internationally and for what purposes. Under the LRS, an Indian cannot take margin to invest internationally, so you cannot take a loan, you cannot invest in speculative instruments, so derivative products you cannot do, you cannot trade in forex pairs.
Alright! So, that was it for today. These are all the 6 mistakes that you should always keep in mind to make the most of your US investing journey as you get started becoming a global investor!