DSIJ Mindshare

Success Mantra For Investors

When it comes to investing, it becomes extremely difficult to predict investors’ behaviour. While on the one hand, there are investors who start investing into different asset classes without ascertaining what asset allocation would suit them, on the other, there are those who do not even start investing either for the fear of choosing wrong investment options or thinking that they do not have enough money. The moot question, therefore, is – What strategy should investors adopt to succeed? Here are a few pointers for investors to achieve investment success

 

says: Hemant Rustagi
CEO, WiseInvest Advisors Pvt. Ltd.

Consider Investment As A Process

First of all, every investor must know that investing is an on-going process and not a one-time activity. Therefore, even without having a lump sum to invest, one can begin investing. There are options like mutual funds that not only allow investors to begin their investment process with a modest sum, but also provide them the best in terms of variety, liquidity, flexibility, tax efficiency and professional fund management. Besides, by investing regularly over a period of time, one can build up capital as well as reduce the impact of short-term volatility.

Have An Investment Plan In Place

Many investors start the process of investment in a haphazard manner. As a result, their investments suffer over the longer term. By having an investment plan in place, one can enhance the chances of achieving the desired results. There are three simple steps that can help determine an action plan.

First, an investor must begin the process by establishing goals that need to be achieved in the short, medium and long-term. Second, it is necessary for an investor to assess his/her current position in the financial lifecycle. Third, investors must decide as to how much risk they are willing to take while investing. This is particularly important, as different financial objectives require different investments.

Participate Actively In The Decision-Making Process

An investor can benefit immensely by taking the help of a professional advisor. However, it is equally important for the investor to actively participate in the decision-making process. While an advisor can help in terms of determining the course of action and selection of investment options, the investors themselves have an important role to play in defining the parameters.

It is equally important for an investor to monitor the progress of the portfolio. This will not only help in assessing the quality of advice he/she has been getting, but also ensure that the portfolio remains on track. Besides, it will keep advisors on their toes.

Look Beyond Traditional Investment Options

In the present complex economic environment, investors need to look beyond traditional investment options to earn healthy returns. However, many of them are usually apprehensive about trying out new investment options. The low participation of retail investors in MFs is a testimony of their preference for traditional options.

To benefit from a tax-efficient investment vehicle like MFs, investors must make themselves aware of the concept of “real rate of return”. Many investors focus on nominal returns, and hence, fail to achieve some of their long-term goals.

Though investment risk and economic uncertainties can never be eliminated, professional fund managers in mutual funds are in a much better position to ensure that investors in different segments achieve their investment objectives.

Re-balance The Portfolio At Periodic Intervals

Investors often face the dilemma of whether to hold on to or sell their equity fund holdings during different market conditions. It is quite common for investors to allow the portfolio to ride on when the market is in a bullish phase. On the other hand, they abandon equities during market downturns, forgetting that those are the best times to continue the process to benefit from “averaging”. In that sense, rebalancing the portfolio up or down can be the answer to their dilemma.

Portfolio rebalancing is a process of bringing different asset classes back into a proper relationship, following a significant move in one or more. It is helpful because rebalancing is more about managing risk than return. It is equally important to decide on a time interval, for eg. once a year, and examine the portfolio.

No doubt, it is a tough decision to either redeem in a rising market or invest in a falling market. However, rebalancing imposes discipline and ensures that the portfolio remains diversified at all times. In a way, rebalancing ensures that investors do not make any haphazard decisions by either exiting from an asset class or investing heavily in it with the aim of making a quick buck.

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