Market volatility often pushes investors into making emotional decisions that can hurt long-term wealth creation. According to financial experts Hemant Rustagi, CEO of Wiseinvest, and mutual fund expert Vishwajeet Parashar, investors frequently damage their portfolios not because of market crashes, but due to avoidable mistakes in portfolio construction and investment behaviour.

Speaking on Zee Business, the experts highlighted 5 common investing mistakes that investors should avoid, especially during volatile market phases.

Rustagi said one of the biggest mistakes investors make is over-diversification by adding too many mutual funds to their portfolios.

According to him, investors often keep buying funds recommended by friends, neighbours or trending market discussions, resulting in portfolios with 30-40 funds or even more. He explained that while mutual funds are already diversified investment vehicles, owning too many funds reduces effective allocation to quality schemes and makes monitoring difficult.

He also warned against portfolio overlap, where multiple funds hold similar stocks and behave similarly in both rising and falling markets.

“Even good funds may fail to deliver meaningful gains if allocation is too fragmented,” Rustagi said.

Parashar cautioned investors against blindly chasing sectors or themes that are currently delivering high returns.

He said investors often develop a fear of missing out (FOMO) when sectors such as PSU stocks, gold or thematic funds rally sharply. However, by the time retail investors enter such themes, valuations are often already elevated.

“Short-term market timing may occasionally work, but long-term wealth creation depends on discipline and time spent in the market,” Parashar said.

He added that investment decisions should be based on risk profile and financial goals rather than recent returns or market hype.

Rustagi said poor diversification can hurt portfolios in two ways—over-diversification and excessive concentration.

According to him, many investors increase equity allocation aggressively during bull markets without assessing their actual risk-taking capacity. On the other hand, investors become too conservative during market corrections and shift long-term money into safer assets, potentially failing to beat inflation.

He stressed that asset allocation should align with investment goals and time horizon rather than the current market mood.

Parashar said investors often become emotionally attached to loss-making investments and hesitate to exit underperforming funds.

He described this as a behavioural mistake where investors refuse to accept that an investment decision may have gone wrong.

He advised investors to regularly evaluate whether a fund is consistently underperforming its category average and whether better alternatives are available.

“Do not get emotionally attached to a mutual fund. Portfolio decisions should be rational, not emotional,” he said.

Rustagi emphasised that investing is a continuous process, not a one-time activity.

He said periodic portfolio reviews are necessary to ensure investments remain aligned with long-term goals and that funds continue to perform reasonably against peers.

On rebalancing, he suggested investors should not reshuffle portfolios too frequently, but should gradually rebalance closer to financial goals in order to protect accumulated gains and reduce risk exposure.

Both experts agreed that many investors begin investing without clearly defining their investment horizon, risk profile or asset allocation strategy.

They also observed that investors frequently chase last year’s top-performing funds instead of focusing on long-term consistency.

The experts said disciplined investing, regular review, proper diversification and staying invested for the long term remain the key pillars of successful wealth creation, particularly during volatile market conditions.