Common Mistakes People Make During a Dip in the Market

Investors tend to make costly decisions when the market turns downwards. No one likes to see falling prices and money loss. It’s bound to make anyone stressed and anxious. However, decisions investors make at this moment can either be smart, or investors can end up paying a heavy price. Here are some mistakes people should avoid during a dip in the market:

1. Buying more to average

Some investors tend to compound their mistakes. If the market dips and the stock you bought also drops, don’t buy more shares of the stock in order the decrease your average buying price. People tend to think that they can cover their losses by buying more of the same shares, but at a lower price. This is not the case. It does make sense why people would think this way, however. If the stock’s bases are strong and the drop in price is because of something outside of the company, averaging down the price could have an upside. If the fundamentals behind the stock have also taken a downturn, however, then averaging will only worsen your losses. 

2. Getting anchored to a price

People set a benchmark price for the shares they purchased more often than they should. This could be the purchase price, but it could also be the highest price the stock has gotten to. Decisions in the future on this stock are based upon this and anchoring to a price level could make people hold onto their stocks for longer than they should when the market turns down. The share price could drop for a wide variety of reasons, but investors hold onto their shares because it is below the price that they pay. They hope that the price will go back to that level without examining the fundamentals of the stock. Instead, if the price of the stock you bought has dropped, do research and find out why this might be the case. If there are internal reasons for the drop such as a lack of earnings visibility, it is better to sell and stop your losses. 

3. Buy scrips at 52-week low prices

People sometimes become value pickers when the market dips. They look for stocks that trade near their 52-week low as these are seen as good bargains because they think that the dip in the market has already affected the price. A lot of these actually turn out to be value traps because it’s very hard to determine when a stock has bottomed out. Even if you are highly convinced that this is the case, you should be ready to experience some losses in the next term because it takes time for the market to digest the value in the stock. 

4. Falling for confirmation bias

Sometimes investors will start reading too many research reports and watching too much investor news. They will try to look for information or experts that support their beliefs and ignore the actual facts. This will have even more damage when the market takes a dip because your judgement will be skewed and you are more likely to make a bad decision. For example, you could get some form of confirmation bias after you read an article that supports your stance on your stocks, but this will make you too optimistic. You have to remember to look at the negative information that comes out about the stock as well and weigh the pros and cons. 

5. Altering your financial plan

A drop in the market can make people change their financial plans or their investment strategy. People might try to increase their exposure to equities to benefit from the market correction, while other people might try to take out all of their money. Don’t make your decisions or invest in a way only because of the way the market is moving currently. The future most likely will be different. People have to be patient and remember their long-term goals instead of making decisions at that moment. 

6. Taking leveraged bets

You might be encouraged by brokerage houses to take leveraged bets. Leverage and margin investing can get you high returns, but there are also big losses and risk associated with these. This should be automatically avoided, especially when the market is unstable. If you take leverage, your investment must earn at least the rate of interest that you are paying on the borrowed capital. This investment could go either way, however, especially if you panic when the market turns. Buying on margin is never a good idea as if limits your options. 

7. Over-diversify your stocks portfolio

People usually tend to put a lot of money into a few stocks while mutual funds diversify in order to reduce their risk. This kind of exposure and lack of diversification in your portfolio could be costly when the market turns, however, too much diversification is not good. Investors might try to reduce their risk by putting their money into multiple companies or across multiple sectors. This could limit the downturn, but it will also prevent you from making large returns when the market turns back upwards. It is also very difficult to manage a large amount of stocks unless they are within one mutual fund. 

8. Stopping SIPs because of the dip

People sometimes stop their systematic investment plan (SIPs) in equity funds when the market dips. However, the entire goal of your SIP uses a bear period in the market to help you long-term. When the markets turn up again, you will earn benefits because you bought more units at lower prices when the market had turned down. If you stop the SIP you will stop the compounding benefit of equities. You should stick to your SIP especially if you are new to investing. 

9. Don’t sell stocks and run to cash

Most people think that cash is safe and that stocks carry a lot of risk in a bear market. However, cash is not always the answer, especially if you have long-term investment goals. Cash will minimize your paper losses when the market dips, but the market will always rebound and stock prices will go up again. Many people who leave don’t rejoin at a good time and they miss the opportunity to earn money if they sold their shares when the market was in a downturn. 

10. Don’t think your portfolio is conservative if it’s not

Some people think this way, and this can have major costs. Many people have portfolios that are very aggressive and carry a lot of risk. People end up losing great deals of money this way, especially if people don’t decrease their exposure to risk as they get older and closer to retirement. People tend to suffer losses that they can’t recover from and they have to continue to work instead of retire. 

11. Don’t own all risky things

If you try to overshoot and buy the most risky stock, funds, and/or bonds is going to cost you greatly. Yes, these can have the highest return if they do well, but you have to protect your portfolio and manage your risk. Eventually, you are going to want to retire and have money in savings in case of an emergency. You don’t want to lose all of this. 

12. Don’t try to time the market

It is impossible to time the market exactly. Make sure to examine and think about your long-term investment goals and be patient. Stay in it throughout the different turns of the market, and you will eventually reap the benefits. People can’t always predict when the market is going to take a turn, however, it is important to look at the stock’s yearly, five-year, and ten-year returns before making a decision of whether or not to buy shares in it or not.

Resources

https://www.usatoday.com/story/money/personalfinance/2020/04/22/bear-market-mistakes-avoid-your-stock-imarket-investments/5144649002/

https://economictimes.indiatimes.com/wealth/invest/stock-vs-mutual-funds-vs-index-funds-how-should-a-beginner-invest-in-equities/articleshow/80717784.cms

5 Trends in Fintech You Need to Know

Fintech has become globally mainstream, with 64% of consumers adopting some sort of behavior that fuses technology with financial services. As the market becomes more mature, so do the challenges facing fintech institutions. This year has brought new trends in improving security, big innovations in mobile banking, and the widespread adoption of 5G internet.

For developers, fintech is a lucrative job market. “It’s a candidate’s market out there,” writes Silicon Republic. “The big fintech giants are crying out for talent.” Forbes estimated that there were over 1000 fintech companies valued at $867 billion in 2016; that number has only skyrocketed in recent years. Companies in the financial technology sector are well-funded and hungry for talented developers. It’s an exciting space to work in, combining security challenges, innovative services, and refining the user experience through thoughtful design and solid infrastructure. Here are the big trends in fintech developers need to know for 2020.

Design matters

The early fintech market was dominated by agile start-ups and disruptors in the financial service. However, traditional banks have since caught up, with institutions adding mobile apps, social media-based services, cryptocurrency, and other consumer-centric “mobile-first” features.

“The institutional banks have been around for longer than most consumers have been alive, and overcoming their inertia requires that disruptors offer something genuinely new, unique, and appealing. The way disruptors can differentiate themselves is by offering a superior user experience. Through stellar UX design and customer-centric features, fintechs can turn banking from a chore into a real pleasure,” writes one analyst.

Developers and engineers well-versed in UI/UX will find their skills in demand as banks seek to offer a smooth, streamlined platform for payment processing, partner services, and more. Innovation in fin-tech will look a lot like polished interfaces and user-friendly design.

AI is a lot of noise, less substance

Artificial intelligence, AI, is among the buzziest of trends across industries – and fintech is no different. Analysts see many potential use cases for AI, particularly in financial modeling and machine learning. AI can supplement traditional analytics, but it isn’t the silver bullet that many media outlets believe it to be.

“In many cases, traditional markers such as repayment history, are still better predictors of creditworthiness than social media behavior, particularly in markets where credit histories (and dedicated agencies to monitor them) are well established, writes one McKinsey report.

Developers looking to keep their team ahead of the curve should consider how AI tools can meld advanced analytics with new and distinct data sources to improve their company’s existing business offerings. AI isn’t a revelation in itself; it’s an integration that can optimize and enhance data analytics.

Infrastructure architects will be in demand

Fintech innovations have developed rapidly – perhaps too rapidly for many enterprises who don’t have the underlying infrastructure to support the new technology. Legacy IT, in particular, the core banking system, is ripe for a revamp in order for new, subsequent digital innovations to proceed. Developers should consider how to help banks upgrade their technology to prepare for a “modular, open-API world.”

In the next five to 10 years, industry analysts expect financial institutions will be replacing their core IT systems. What can developers do now to make sure the changeover is relatively painless? Some companies, like smaller banks, are seeking developers to approach updating their core banking system now. Other banks are starting with their non-core functions first. Developers who are versed in IT infrastructure should prepare to be very in-demand over the next decade.

Security will continue to be a priority

Security is always on-trend, and 2020 will be no different. As the fintech industry continues to invest in mobile-first banking, developers need to be well-versed in mobile app security. Build your mobile app while following some of these best security practices and check your app against guidelines from the Open Web Application Security Project (OSAP). In 2019, their checklist included testing against things such as:

  • injection
  • broken authentication
  • sensitive data exposure
  • XML external entities (XXE)
  • broken access control
  • security misconfigurations

Other than mobile security, traditional banks will seek to include biometrics and blockchain to improve their customer’s financial data.

5G is coming

In 2020, 5G is expected to enter the market in a bigger way than ever before, transforming data transfer with 10x faster speeds than 4G. “The networks will help power a huge rise in Internet of Things technology, providing the infrastructure needed to carry huge amounts of data, allowing for a smarter and more connected world,” writes TechRadar.

5G promises to impact the fintech sector’s mobile apps, improve the quality of banking services, and connect millions of devices. “Banking operations will penetrate other markets and extend to new channels including wearables, 5G smartphones, and IoT gadgets,” predicts one industry analyst. Software developers will need to prepare with robust code and backup for high traffic loads. AR and VR will become the norm, rather than the exception, as 5G makes it easy for consumers to use alternate realities everywhere. Fintech won’t be an exception. Developers must start thinking now of thoughtful ways to design the app experience to accommodate high speeds, AR/VR, intuitive design – and the infrastructure and security to support these changes.

A collaboration with Index; Please take a look at the original article

https://www.indexcode.io/post/5-trends-in-fintech-developers-need-to-know

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