Investing Fundas

The first thing when "investing" comes to mind is saving money for future. This is not true now-a-days when investing truly means maximizing your net returns. One of the important factors while maximizing returns is to reduce the fees and taxes, which many investors ignore.
Yesterday I was chatting with my brother and he wanted to invest in some ESPP, which is nothing but a option to invest in shares of the company you work for. I strongly advised him not to do so. One of the reasons (out of several ones) I feel is that an investor should not invest in the industry they themselves are working. So if I am working in IT, then my portfolio should not consists of many IT shares. Some people might say that then it is advantageous to invest in shares of your own industry since you know it pretty well. This knowledge will help you pick the rock solid shares with ease. My argument is a bit pessimistic. If you work in the same industry where your investments are, chances are that with a sudden downturn or slowdown, not only affects your job but also your investments. Imagine IT people having IT shares during the 2000 dotcom bust. They would have lost not only their jobs, but their savings too !!

3 comments:

  1. Your argument is not good. IT is a good investment because it is a high growth sector. It should NOT be the only investment your friend makes. They need to diversify into non-IT as well.



    -Amit
    http://www.ipatrons.com

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  2. I understand what you mean to say, but this advice is for people who usually goes only for IT shares. I have seen the dotcom era and I can vouch how it feels to loose not only your job but your investments too... so this post is more like a cautionary note.

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  3. harsha1:33 PM

    nope, it's a flawed decision. Generally ESPPs are allocated at a rebate to market price, which itself is an immediate profit on day one.

    and coming to investing in the same industry where you work, it rather the best idea contrary to your conclusion since as an insider you know better about the prospects of the industry. Ofcourse, if i know my company profits are going to double, i never mind dropping every other cent i've with me to reap a higher benefit.

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