The Art Of Investing Judiciously

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors
Investing money judiciously enhances your chances of achieving different investment goals over various time horizons. Although there is a plethora of investment options that can help you realise your financial dreams, you must make the right choices and follow a disciplined investment process. To get this process right, you need to follow certain investing principles. Here are a few that can make you a better investor.

Have a Roadmap : One of the key factors that ensure consistent investment success is to follow a disciplined investment process. Simply put, you must avoid following a haphazard approach for investing and exiting out of different asset classes depending on how they behave at a certain point in time. More often than not, this approach can make you miss out on opportunities in the market. Hence, you must create a roadmap right at the start of your investment process.

This would involve establishing your goals to be achieved over short, medium and long-term horizon, assigning a time horizon and determining how much to invest to achieve each one of them. Remember, a goal-based investment process ensures that you follow budgeting, give risk management its due and follow an asset allocation model that helps in creating the right balance between risk and reward.

Fix the Goalposts : Your time horizon plays a key role in determining your asset allocation, which in turn determines the attendant risks and probable returns over a defined time horizon. Hence, once a time horizon is assigned to a goal, you must remain committed to it irrespective of how the market behaves and continue your investment process sans any interruption. This approach not only helps in reducing the impact of volatility on your portfolio but also hastens the recovery process by bringing your average cost down.

Maintain Flexibility : Have flexibility, but avoid frequent changes. While investment is an ongoing process, there is no straight path to investment success. Therefore, your investment process and chosen investment options must have flexibility so as to rebalance your portfolio in line with your changing circumstances as well as economic and political environment. Besides, you must be prepared to tackle the challenge of a dip in the performance of some of the investments in your portfolio during certain time periods.

No doubt monitoring the performance holds the key to long-term investment success but it is important not to get tempted to make frequent changes just because you have the flexibility to do so. Also, you must refrain from 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.

Focus on Tax : Give tax-saving investments their due. Tax-saving investments can play an important role in your wealth creation process. Unfortunately, many investors have the habit of investing in a disorganised manner to save taxes. That’s because tax-saving investments are considered a burden rather than a tool to get the best in terms of saving taxes as well as making money grow.

In reality, if you integrate these investments into your overall investment program and adopt a disciplined way of investing through the year rather than at the fag-end of the year, their contribution to your wealth creation process can be tremendous. For example, equity-linked savings schemes of mutual funds allow you to save taxes and earn positive real rate of return over time. Another notable feature is a lock-in period of three years, which is the shortest amongst tax-saving instruments.

Be Open and Collaborative : Last but not the least, you must always be open to absorb knowledge and use it in your investment process. Today, a lot of information is available on various investment options and strategies to invest in them through the print as well as electronic media. If you find it overwhelming to analyse this information, don’t hesitate to take the help of an advisor. Once you start working with an advisor, listen to him or her carefully as that can go a long way in allowing you to understand the complexities of the investment world. Remember, unwillingness to listen can make it difficult for you to adapt to the ever-changing investment and economic environment.