What investment mistakes should investors avoid this Diwali? Experts share 5 lessons

Diwali is considered an auspicious time to make new investments, with many investors using the festive season to review their portfolios or put surplus money to work. However, the excitement around the occasion can also lead to rushed decisions, such as chasing funds that have delivered strong recent returns, increasing exposure to gold and silver after a sharp rally, or making changes to mutual fund portfolios based on short-term market movements.

Investors should remember that investment decisions need to be guided by their financial goals, risk appetite and investment horizon rather than the festive occasion or prevailing market sentiment. Experts highlight five common investment mistakes to avoid this Diwali, from chasing recent performers and making impulsive portfolio changes to investing surplus money without a clear plan.

Biggest investment mistakes investors should avoid during Diwali season

The festive season may encourage investors to start new investments or add to existing mutual fund portfolios. However, choosing schemes simply because they have delivered strong returns recently can expose investors to recency bias. Adding more funds without checking their underlying holdings can also create the illusion of diversification, even when the portfolio has significant overlap.


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Bharath Rathore, Executive Director, Anand Rathi Wealth Limited told ETMutualFunds that investors should focus on why they are investing rather than when they are investing. Financial goals, investment horizons should guide investment decisions and he identified chasing recent performers as one of the biggest mistakes investors make, adding that past performance does not guarantee future returns and should not become the deciding factor in investment choices.

Rathore also cautioned against adding more mutual funds without checking for portfolio overlap. Investors holding five to 10 schemes may believe they have a diversified portfolio, but different schemes could have exposure to the same underlying stocks. “Rebalancing should only be considered when there’s persistent underperformance for four to five years or if the asset allocation of the portfolio has significantly deviated from the original strategy.”

Vishal Dhawan, Founder and CEO of Plan Ahead Wealth Advisors shared with ETMutualFunds that during festive gatherings, casual stock tips are often shared among friends and relatives. Acting on these suggestions & tips without reviewing the actual business often leads to buying poor-quality assets at high prices. It is wise to ignore these talks and base choices on facts.

“The special Muhurat trading session is meant as an auspicious, symbolic start to the new year and many people treat this brief hour as a chance for quick trading gains, which often backfires. Entering hurried trades during a short and volatile window can lead to losses.”

He further said that festive marketing campaigns often push specific seasonal themes and product offers, committing large amounts of money to these trends can disrupt your broader asset balance and sticking to a disciplined, routine strategy remains dependable than chasing festive hype.

Is investing in gold and silver at elevated prices a mistake?

Gold and silver often attract investor attention during the festive season. However, strong recent returns can tempt investors to increase their exposure without considering the role these metals play in their overall portfolios.

Market experts say that before making additional investments, investors need to assess their existing asset allocation, financial goals and investment horizon rather than simply chasing price momentum.

Dhawan said that buying gold and silver at elevated price levels is not necessarily an error if your goal is multi-year wealth preservation and precious metals act mainly as a shield against inflation over long periods rather than generating constant income so if you plan to hold them for several years, short-term peaks & volatility matter less.

“Investors should check that precious metals do not take up too much room in their overall portfolio. Placing too much capital into metals can lower long-term growth because they do not pay dividends or regular interest.”

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It is also helpful to recognize that silver experiences sharper price swings than gold. Spreading purchases gradually over time helps reduce the risk of buying everything at a temporary high. This steady method keeps your overall risk manageable and limits price fluctuations, Dhawan further said.

Rathore said that gold can be a part of the debt allocation in a long-term investor's portfolio, investors should avoid increasing their allocation to gold merely because of its strong recent performance and the allocation should instead depend on the investor's existing portfolio, financial goals and investment horizon.

For investors with a long-term horizon of more than five years, Rathore suggests an 80:20 equity-to-debt allocation. Rathore said investors could consider allocating half of their debt portion, or 10% of the overall portfolio, to gold ETFs.

However, he does not recommend investing in silver because of its volatile nature and the difficulty of predicting its price movements. Silver also has significant industrial demand, making its prices more sensitive to economic and industrial cycles.

What not do with mutual fund portfolios this Diwali

Market volatility and short-term underperformance can make investors question their mutual fund choices, particularly when some schemes are delivering weaker returns than others. However, stopping SIPs, exiting equity investments or switching to conservative assets in response to temporary market movements can disrupt a long-term investment strategy.

Rathore said investors should not chase recent performers or panic and exit equity investments because of short-term market conditions. He also cautioned against switching to conservative assets such as debt solely for stability.

New investors, in particular, may be tempted to choose conservative assets over equity in the current market environment. Rathore said this should be avoided, as long-term investments can benefit from a combination of growth-oriented equity assets and stability-oriented debt assets.

He advised investors to maintain asset allocation in line with their investment strategy, financial goals and investment horizon. If the portfolio has moved away from the pre-decided allocation, investors should review it and make the necessary changes to restore the original balance. For long-term investors, an 80:20 equity-to-debt allocation can be considered.

Rathore also advised investors against frequent portfolio changes. He said portfolios should ideally be reviewed every six months or at least once a year. Rebalancing should be considered when there is persistent underperformance over four to five years or when the portfolio's asset allocation has significantly deviated from the original strategy.

Dhawan said that one should avoid pausing or stopping regular monthly contributions to fund festive shopping or speculative stock trades. Regular investments are designed to average out market ups and downs over time. Halting this habit disrupts the compounding process needed to build long-term savings & wealth.

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He further said that one should avoid redeeming or switching investments just because a new calendar year has begun. Unplanned changes can trigger taxes and exit loads. Portfolio changes should be driven by financial goals, not calendar events. Also, do not buy mutual funds expecting festive discounts or special offers. Fund selection should be based on your financial goals and investment horizon, not promotional campaigns.

Investing surplus now a mistake?

Investors may receive bonuses, gifts or other surplus money during the festive season. While this can be an opportunity to invest towards long-term goals, it can also lead to impulsive spending or hurried investment decisions. Investors should avoid committing money without first setting aside an appropriate amount for festive expenses and identifying how much they can invest.

Dhawan said that one should avoid committing surplus funds in a hurry simply because cash is sitting in your account. The urge to invest right away often leads to careless asset selection without proper research. Taking a few days to review your financial position prevents rushed choices you might regret later.

Do not overlook costly debt or neglect your emergency savings before putting new money to work. Paying down high-interest loans like credit card balances provides for financial savings. Never put surplus money into an investment without defining when you will need it back. Matching your investment choice with your planned timeline protects your principal, Dhawan further said.

Rathore said investors should avoid overspending during the festive season, delaying investments while waiting for a further market correction, or making emotionally driven financial decisions. He suggested setting a clear budget for the surplus amount, with 60% allocated towards investments and the remaining 40% towards festive expenses.

One key investment lesson to avoid costly mistakes this festive season

Beyond individual investment choices, discipline and consistency remain important when building long-term wealth. Investors may be tempted to react to short-term market movements, book profits or change their strategy when a fund temporarily underperforms. However, such decisions can take them away from their financial goals if they are not based on a review of their overall portfolio and investment horizon.

Rathore said investors should prioritise disciplined investing to build long-term wealth. Short-term market movements, recency bias, temporary underperformance and the urge to book profits should not determine an investor's portfolio strategy.

He added that while Diwali is considered an auspicious time to make new investments, investors should not feel pressured to invest simply because of the festive occasion. Building wealth is about making the right investment decisions and remaining consistent over time.

Dhawan said that one such recommendation is to separate cultural customs from your main financial strategy. If you wish to mark an auspicious festival with a trade, keep the amount small and strictly symbolic. This practice respects meaningful traditions without risking the funds set aside for core family goals.

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He also said that one should make investment decisions based on your risk appetite and financial goals, not festive optimism. Maintain your planned asset allocation, as markets do not guarantee positive returns during festive periods. “Avoid hasty decisions driven by promotions or market rallies. Staying disciplined and consistent is better than making emotional investment choices.”

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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