The Importance Of Investment Planning
Aashish Bhargava
Consultant, 5 AB Enterprises
When it comes to investments, every individual has his own tips and advice to offer. It is very rare to come across a person who will admit that he is not very good with personal finance. Yet, surveys, year after year, show that retail investors in general are found to be lacking when it comes to planning to meet long-term financial goals. Despite the abundance of knowledge whether through social media, books or any other media outlets, individual investors have repeatedly failed in taking the right steps. Therefore, given below are some guidelines one should be careful about when planning one’s investment. While none of these is foolproof, it is the closest one can do to eliminate major mistakes.
1. Mute the Noise
Just like every individual has a unique DNA so is every individual’s financial needs or goals. Do not fall into the trap of herd mentality. Today’s media noise is flavoured for the traders, so mute the noise and realise when to be an investor and not a trader. At any given point in time, there will always be an asset class in vogue. Tampering your portfolio from time-to-time based on what is in vogue is nothing less than asking for lasting financial impairment. For example, in the month of March 2020, equities witnessed one of the sharpest corrections in known history.
At the same time, gold staged a sharp rally. Just because the yellow metal posted gains while equities lost ground, shifting all of equity assets to gold would lead to nothing but disappointment as equities smartly recovered in the following months while gold seems to be steadily losing sheen. So, once an asset allocation plan is set with the aid of a financial consultant, stick to it. If you wish to make any changes, speak to the consultant first.
2. Be Conscious of Timeframes
Short-term, medium-term and long-term are words which are often used when it comes to financial planning. The definition of each of these terms, ironically, varies from person to person. Globally, investors define short term as 1-3 years, medium term as 3-7 years and long term as 7+ years. However, it is seen in Financial Planning MF Page - 7 The Importance Of Investment Planning
India that short term is regarded as up to 1 year, medium term is 1-3 years and long term is 3+ years. When planning one’s finances, the timeframe has an important role to play. This is because depending on the timeframe one has to decode the kind of asset class or products one has to invest in. So, goofing up on the timeframe can prove to be detrimental to overall financial wellbeing.
3. Do not Ignore Debt/Bond Market
While investors are gung ho about investing in equity markets, when it comes to deploying money into debt market-based products, the idea is always received with enormous trepidation. The comfort often ends with liquid funds where money is parked till further deployment. While debt products do not make as much noise as the equity ones, they are no less potent in a portfolio. Remember, each and every asset class has a role to play in a portfolio. The presence of debt ensures that the downside risk to the portfolio is mitigated as much as possible. In the tax scenario, bonds or bond funds are the best alternative to fixed deposits for managing regular cash inflows by using the SWP mode.
4. Do Not Shy Away from Tactical Allocation
Asset allocation, in general, tends to be largely fixed, unless life circumstances change and lead to a change in risk profile and consequently asset allocation. However, there may be times when your risk appetite allows you to take some tactical asset allocation calls. Such tactical calls are not an everyday feature, and have to be used sparingly with understanding. Such situations may occur especially at times of market dislocation when the window of opportunity is open for a very less time while the potential gains can be outsized in nature. Do not look away at such times. If the math adds up, is supported by logic, and has the blessings of the financial advisor, do not keep away from tapping into such opportunities.
To sum up, one’s financial wellbeing lies solely in one’s hands. There are no quick fixes here. Be prepared to be invested for the long haul and ride the crests and troughs with conviction. That’s because it’s when to stick to your plan that your future financial wellbeing will be secured to suit you and your family.
The writer is a Consultant, 5 AB Enterprises
Email: aashish@investmy.money
Website: www.InvestMy.money