Light Up Your Diwali With Bright Investment Decisions

Diwali is the festival that brings light and prosperity, hope and joy to everyone’s life. Diwali is also a time to overcome shortcomings and biases in the investment process and initiate rectification process to brighten one’s financial future.

The fear of volatility in the stock market often compels investors to either stay away from it or make abrupt changes. In reality, a portfolio review should be an on-going exercise and not a haphazard one. If you are one of those investors, who have been struggling to manage volatility and its impact on your portfolio, Diwali can be a good time to make amends. This Diwali, you must commit to making bright investment decisions to ensure a great financial future for yourself, as well as those who are financially dependent on you. Here is what you need to do. 

Have your asset allocation in place – Do not make the mistake of taking investment decisions considering market moods. Remember, asset allocation is the key to successful investment in the long run. It helps in determining the level of the risk in your portfolio and managing your expectations that you have from it. Simply put, it helps in maintaining the right balance between the risk and the reward. For example, the focus should be on staying ahead of inflation in the long term, growth and stability in the medium term, and preserving capital while investing in the short term. 

Give equity a rightful place in your portfolio - Traditional investment options, such as fixed deposits and small savings schemes, continue to remain the preferred choices for a majority of investors in our country. No wonder, despite being the most dynamic and potentially the best asset class over the longer term, equity has not been able to find its rightful place in our investment universe. 

While it is heartening to see an increasing number of investors taking the Systematic Investment Plan (SIP) route to invest in equity funds, there is still a large section of investors that remains skeptical about the role this asset class can play in their wealth-building process. If you are still unsure about taking the plunge, it's time to think again. 

Follow a disciplined approach - While there are investment strategies for equity investors to tackle various market conditions, the unpredictable nature of the stock market, especially in the short to medium term, makes it difficult for them to practice these with a reasonable degree of success. This is why you must opt for continuity in the investment approach on a long term basis rather than adopting haphazard short term strategies. A disciplined investment approach takes care of most of the imperfections in the market. It will benefit you for sure – partly because it abandons any strategy that might prompt you to time the market and partly because in the long run stock markets tend to perform better than other asset classes. 

Make tax-saving investments a part of your investment plan - While every tax payer makes efforts to save taxes, many ends up investing in an ad hoc manner at the fag-end of the financial year. As a result, they lose an opportunity to make these investments count in their wealth creation process. If you have been following an ad hoc approach and still have not invested in tax savings for the current financial year, it is the time to make amends. With six months left in the current fiscal year, make sure that you don not delay your tax-saving investments any further. Also, choose an investment option based on your overall asset allocation. ELSS can be a great option for those who would like to align tax-saving investments to their long term goals. 

Start participating actively in your investment process - Although seeking the help of a professional advisor is always a good idea, leaving everything to him/her may not be a smart strategy in the long run. You need to participate actively in the decision-making process. Remember, while an advisor can help you in terms of determining the course of action and selection of investment options, you continue to have an important role to play in defining the parameters. Moreover, a better understanding of complexities relating to investing will minimize the instances of abrupt investment decisions over time and save you from the possible damages to your wealth.