Strategize Your Wealth-Building Process

Allowing greed and fear to cloud your investment decisions can be harmful for your financial health. While greed can take you beyond your defined level of risk, fear stops you from looking beyond traditional investment options. 

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors 

Building wealth is an important goal for all of us. However, not many of us do enough to achieve this goal. While many investors err either by delaying the start of investment process or not remaining committed to it during their defined time horizon, there are those who don’t build their portfolios with the right asset mix required to earn positive real rate of return, that is, returns minus inflation and taxes. Investing in a haphazard manner often causes panic and anxiety and that compels them to abandon their investment process. 

No wonder, building wealth remains just a distant dream for many investors. Considering that there are no short-cuts for making your portfolio grow to a level that there are enough financial resources at every stage of your life, the key is to have an investment plan in place and the conviction to stick with it during periods of market turbulence. 

It is important to have a clear thinking through your investment process. In other words, following a haphazard approach or abandoning your asset allocation in a current market-like situation can make you compromise on your financial future. Therefore, while planning your investments, you must look at the bigger picture by establishing your goals to be achieved over short, medium and long-term horizon. A goal-based investment process ensures that you follow budgeting, give risk management its due and follow an asset allocation model that helps you understand the risk associated with your investments as well as what to expect in terms of returns. 

Once a time horizon is assigned to a goal, you must remain committed to it. This approach prepares you to tackle the volatility without having to worry about its impact on the portfolio in the short term. Besides, if you continue your investment process uninterrupted, you benefit from averaging. 

It is a proven fact that there is no straight path to investment success. Hence, your investment process as well as options must provide you the flexibility required to realign your portfolio in line with your changing circumstances as well as economic and political environment. Besides, you may have to contend with the challenge of handing non-performance of some of the investments in your portfolio. Therefore, investing in open-ended mutual funds can be a much better option than investing in traditional options that do not allow you the required flexibility. 

It is equally important not to get emotionally attached to your investments as you may find it difficult to make changes, when required. It is important to be open to make changes in the portfolio in case some of the investments underperform their peer group and benchmarks for prolonged periods. However, it should be done only after giving sufficient time to fund managers to perform and prove their worth over different market cycles. 

Allowing greed and fear to cloud your investment decisions can be harmful for your financial health. While greed can take you beyond your defined level of risk, fear stops you from looking beyond traditional investment options. Also, avoid discussing your portfolio with all and sundry as conflicting views on your portfolio composition can make you lose your focus and compel you to make investment decisions that may compromise your financial future. 

Today, a lot of information is available on various investment options and strategies to invest in them through different mediums. Hence, you must be open to absorb this knowledge and use it in your investment process. If you find it overwhelming to analyze this information, don’t hesitate to take the help of an advisor. Once you start working with an advisor, listen to him/ her carefully as that can go a long way in allowing you to tackle the complexities of investment world.