New Year 2025: What investment mistakes should investors avoid next year?

As the year 2024 comes to an end in a few days, investors are expected to avoid repeating the mistakes they accidentally made in the past year. Some investors tend to rebalance their portfolio to enter the new year with fresh energy and positivity.

The idea behind rebalancing is to leave the past behind and make new beginnings. So how do you ensure that the investment mistakes of the past are not repeated this time?

For example, you may have chosen a stock based on its historical returns, but this turned out to be a bad bet. Or you have overexposed your portfolio to stocks, throwing caution to the wind. And now you regret your decision.

Here we list some of the most important mistakes to avoid in the new year.

2025: Top investment mistakes to avoid:

Avoid portfolio rebalancing

First, let’s dig deeper into the reason for rebalancing. First you need to ask yourself if this is even necessary. More often than not, a rebalancing is imperative as the allocation to one asset class (equities) increases compared to others (debt) due to a bull run.

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

“If an asset class performs well, people are inclined to allocate more investments. Most investor portfolios today are more invested in equities than in the past. New Year is a great opportunity to take a closer look at the current asset allocation and make corrections with the help of a mutual fund advisor to ensure growth with stability in 2025,” said Sandeep Bagla, CEO of 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. These may change over time. Rebalancing ensures that you realign your portfolio to your current circumstances. Investment Objectives and Risk Tolerance.”

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

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

Investing based on historical returns

Experts point out that a key mistake investors should avoid is basing their decisions solely on historical returns.

“Many investors base their decisions solely on historical fund performance, assuming that past returns will be repeated in the future. For example, if a fund returns 50%, they can invest blindly without assessing whether it suits the future market prospects or their financial goals,” says Soumya Sarkar, co-founder of Wealth Redefine, an AMFI-registered mutual fund distributor.

“While rebalancing, you should prevent market trends from determining 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 is not always a reliable indicator of future results. Don’t make decisions based solely on short-term market performance,” said Nikhil Behl, CEO (equities), INDmoney.

Do not abuse tax collection

Experts also point out that not taking advantage of tax collection is also a mistake to avoid. “Many investors do not benefit from tax collection simply due to a lack of knowledge. The government of India is one ₹1.25 lakh exemption on long term capital gains. This means a booked profit of up to ₹1.25 lakh is completely tax free and the investor does not have to pay the LTCG of 12.5 per cent,” said Vivek Sharma, Investment Head at Estee Advisors.