Here's what investors must NOT do in 2012

Ok, so you’ve read more than your fair share of what to expect from financial markets in 2012, and what to do to stay smart and on top of things.

But do you know what you SHOULDN’T do this year?

Firstpost presents four tips to help you avoid making mistakes while placing your bets in the new year.

One, don’t depend solely on the intelligence of so-called ’experts’ to make money for you. As we all saw very clearly, even brokerage firms with million-dollar software and other top-notch resources at their disposal couldn’t protect their own assets during the credit crisis of 2008. Don’t expect them to protect yours, no matter what they guarantee.

[caption id=“attachment_169666” align=“alignright” width=“380” caption=“This year must be about the basics and sticking to your guns. Reuters”]  [/caption]

By all means, go ahead and read what top investing gurus have to say, but don’t follow their recommendations blindly. Remember that no one can predict random events. So, do your homework. In addition, keep in mind that no government agency or regulator can completely protect you from con artists or the flow of false information. You are on your own when it comes to investing.

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Two, don’t succumb to the temptation of over-investing in an asset class just because it performed well in the recent past. Most investors mistakenly believe that just because an asset did well last year, it will continue to shine this year. That may not necessarily be true.

Take gold for example. By the end of 2011, the shiny metal completed 11 consecutive years of annual gains, sparking several bullish predictions about gold prices in the new year.

Maybe it will turn out to be a good year for the precious metal, but it would still be a mistake for investors to pile all their money into gold. As always, remember to allocate your money wisely. Do NOT put all your money in one asset. That way, you’ll be protected if any heady predictions go awry.

Three, don’t try and time the market. Even the best investing gurus advise against doing so, no matter how well you think you know the market. You’ll eventually burn your fingers by constantly jumping in and out of the market compared with staying invested in the market.

As most experts will tell you, the market often gives so many fake signals that it’s practically impossible to know the right time to invest again. Also, don’t assume that equity markets always follow trends in economic growth. Markets are typically a leading economic indicator and can start falling much before the economy actually does.

In fact, trying to time the markets often leads ordinary investors to invest near the peak and pull out when markets are at the bottom.

**Four,**don’t forget to consider the impact of inflation on your investments. Given that interest rates are high right now, several investors have moved money into fixed-income assets such as fixed deposits (FDs). Even savings deposit rates have been hiked, encouraging investors to put more money into such accounts. But the truth is that with inflation around 9 percent, most of these investment avenues are money-losing propositions since their rates are below 9 percent (especially on FDs of less than a year).

In real terms, investors lose as their investments are not even earning enough returns to cope with inflation. Don’t make that mistake this year.

Happy investing!