Investing Is Like A Game Of Snakes And Ladders

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors 

Investing money can be a complex process, especially considering the ever-changing financial landscape and investors' habit of allowing emotions to take over their investment decisions. No wonder, investors face many challenges at different stages of their investment process.

Of course, there are instances when investors are able to make easy money and that often prompts them to get carried away. Simply put, the world of investment is like a game of snakes and ladders. For every ladder you climb, there is a snake to bring you down. Hence, it is crucial to follow a consistent investment strategy and stick to it during the entire defined time horizon.

Here are some of the situations that can derail your investment process exactly like a snake brings you down in the game and how you can tackle them successfully: 

*Ignoring inflation- Inflation is known as a silent killer as it erodes the value of your money over time. As a result, you may fail to accumulate the corpus required to achieve your different long-term investment goals. To beat inflation, you must focus on earning “positive real rate of return”. The right way to do so is to invest in market linked products offered by mutual funds.

* Ignoring tax efficiency of returns-

While focusing on how much returns you can get is important, even more important is how those returns are taxed. Many investors make the mistake of investing in instruments that offer guaranteed returns but end up paying tax at their nominal rate, which makes a huge dent in their post-tax returns. Considering that long-term goals require us to create a large corpus, tax efficiency of returns becomes utmost important. Investing in tax efficient instruments like equity and equity-oriented balanced funds can enable you to tackle this issue efficiently. 

* Ignoring the value of quality investment advice-Investors often become quite adventurous while investing their money. They forget that investing money is not about excitement, but following a well-planned process. Needless to say, to become a successful investor, you must know how to decide where to invest, monitor the portfolio and analyse the impact of different national and international events on your portfolio from to time. Therefore, if you are not sure about how to do it, take help of a qualified investment advisor who can help you realise your dreams for your near and dear ones. 

* Ignoring risk management

Although insurance, both life and health, plays a crucial role in protecting one from the implications of setbacks due to sudden risk to life and health, many investors err by ignoring this aspect completely. Either they do not think it is necessary to have risk cover by way of a life or health insurance policy or they do not buy the right product. 

Ignoring this important aspect can expose your family members to the risk of facing uncertain financial future. Hence, risk management has to be given topmost priority. In fact, before starting your investment process, you must ensure that you are adequately insured in terms of health and life insurance. It is equally important to do so through the right product. The most important thing to remember is that insurance and investment need to be kept separate.

Of course, if you follow certain basic investing principles, your investments can grow faster, exactly the way a ladder takes you forward in the game. Here are some of these principles 

* Start investing early - Starting to invest early can help you in climbing the ladder of investment success through the power of compounding. Power of compounding is known as ninth wonder of the world as it allows an investor to earn return on return. Moreover, mistakes committed at an early stage allow you to learn without taking huge risks and that makes you a better investor over the longer period. 

* Follow an asset allocation model- Asset allocation allows you to invest in different asset classes like equity, debt and gold. It is a proven fact that 90 per cent of returns come from the asset allocation and the remaining from which investment option you are invested in. Besides, a diversified portfolio across different asset classes brings about the right balance between risk and reward. Investing aggressively and/or conservatively has its own perils and hence asset allocation and rebalancing it once a year can allow you to climb the ladder of investment success consistently. One of the best ways to practice asset allocation is to have a financial plan and follow a goal-based investment approach.