Year 2025: What investing mistakes investors should investors avoid in the New Year? | Mint

As the Year 2024 is set to end in a few days, investors are expected to avoid repeating the mistakes they made in the past. Some investors tend to rebalance their portfolio to enter the New Year with a fresh energy and vigour.

The idea behind rebalancing is to leave the past behind and make a new beginning. So, how does one ensure that the past investing mistakes are not repeated this time around.

You may have, for instance, chosen a stock based on its historical return but it turned out to be a wrong bet. Or you overexposed your portfolio to equity while throwing caution to the winds. And now you regret your decision.

Here we give a lowdown on some of the key mistakes one should avoid in the New Year.

2025: Key investing mistakes to avoid:

Avoiding rebalance the portfolio

At the outset, let us first dwell deeper into the reason for rebalancing. First you need to ask whether it is required in the first place. often than not, rebalancing is imperative since the allocation to one asset class (equity) rises in comparison to other (debt) as a result of bull run. 

And vice versa happens during the bear market. So, from time to time, it is important to rebalance the portfolio.

“When an asset class performs well, one tends to allocate more. Most investor portfolios have higher allocation to equities today than earlier. New year is a great opportunity to take a close look at the current asset allocation and make corrections with the help of a Mutual Fund advisor to ensure growth with stability in 2025,” says Sandeep Bagla, CEO TRUST MF.

Vivek Sharma, Investment Head at Estee Advisors, echoes the same sentiments when he says, “Your portfolio should reflect your investment objective and risk tolerance. Over time, these can change. Rebalancing ensures that you realign your portfolio to reflect your current circumstances. Investment goals and risk tolerance.”

Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, however, has a slightly different view on this.

“Rebalancing your portfolio should not be treated as a mandatory or frequent activity — nor should it be driven by the temptation to chase high-return schemes. The true purpose of rebalancing is to realign your asset allocation with your personality, financial goals, and risk tolerance – not to switch from one scheme to another for quick gains,” she says.

Investing based on historical returns 

One key mistake, experts point out, which investors should avoid is to base their decisions solely on historical returns.

“Many investors base their decisions solely on historical fund performance, assuming past returns will replicate in the future. For example, if a fund delivered a 50% return, they may invest blindly without assessing whether it aligns with future market prospects or their financial goals,” says Soumya Sarkar, Co-Founder, Wealth Redefine, AMFI-registered mutual fund distributor.

“While rebalancing, avoid letting market trends dictate your strategy. It’s tempting to follow last year’s top performers, but this can lead to over-concentration in certain assets and disrupt diversification. Past performance isn’t always a reliable indicator of future results. Don’t make decisions based on short-term market performance alone,” says Nikhil Behl, Co-founder, INDmoney.

Not taking advantage of tax harvesting

Experts also point out that not taking advantage of tax harvesting is another mistake they should avoid. “A lot of investors don’t take advantage of tax harvesting simply because of a lack of knowledge. The Government of India allows a ₹1.25 lakh exemption on long-term capital gains. This means gains booked up to ₹1.25 lakh are totally tax-free, and the investor would not have to pay the 12.5 percent LTCG,” says Vivek Sharma, Investment Head at Estee Advisors.