Investment is one such goal that makes the journey of life interesting.
Investment is an asset acquired with the goal of generating income or appreciation. Appreciation increases in value over a period of time. Investment is made to create future wealth.
When a child is born, learning is gradual. Recognition with senses, reciprocation with gestures, and engagement with action. From the crib to a two legged walk, each stage is learnt before perfecting it for independence.
Financial wisdom and associated freedom are similar. One is disciplined in one’s pursuit of learning for the first 15 years of education. It makes one ready to be financially independent in the real world. After the initial enthusiasm of owning real, hard earned money comes the responsibility of safeguarding it for future goals and requirements.
Starting one’s investment journey early can be a key but it need not necessarily guarantee any financial success. Whenever one is willing and ready to start, it is a good time. Having basic understanding of one’s income, expenses, liabilities, savings, financial and retirement goals and how one is doing against the budget or plan set out for each of these items is a good place to be in. It requires discipline, consistency and ongoing calibration.
Depending upon surplus income, time horizon, liquidity requirement, risk & reward appetite, one can choose to be in either traditional investment options (like bank accounts, deposits, bonds, etc) or in mature products (like mutual funds, stocks, ULIPs, PMS, REITs, etc) or any combination from the above. Most investment options have inherent risks that one signs up to while buying that product.
Example: Bank deposits are subject to interest rate and reinvestment risks. Bonds are subject to both and default risk, stocks and mutual funds are subject to market, liquidity and unsystematic risks. Over and above, investments are subject to systematic risks which need to be managed through portfolio diversification and other strategies.
The more time one spends in understanding the life cycle and behaviour of one’s investments over a period of time, the more equipped one is with effective planning towards weathering a potential or a real storm, as and when.
Some smart and proactive risk management workarounds for one’s portfolio are:
Diversification – Spread investment portfolio among a variety of investments (subpar returns or losses in some may be offset by others with average returns or gains).
Asset allocation – Distribute portfolio across major categories of investments such as stocks, bonds, cash, gold, REITs.
Low cost investments – Invest where cost of investment is low such as Index Funds, ETFs.
Investment strategy – Active vs passive investing, value vs growth investing, income vs gains oriented investing.
Simplify investment – Invest in what you understand (risk tolerance), learn about what you want to invest in but do not understand (without undue worry).
Quality over quantity – Select good quality, long term options (large caps – less volatile, low risk, relatively moderate returns) having sound financial indicators (P/E and PEG ratios, etc).
Strategic investment approach over tactical one – Be disciplined in your investment style. Avoid panic or getting rattled by temporary market fluctuations.
Be confident of your well thought, well constructed financial portfolio basis above tenets.
When information is abundantly available, choosing the right investment product(s) can be taxing and intimidating. Collaborate with an investment adviser, to achieve your desired financial objectives in a well-planned, well diversified and systematic way throughout your investment journey.
“The big money is not in the buying or selling, but in the waiting”- When it comes to investing, patience is perseverance. It’s easy to get carried away by sudden market movements and trends, but big wins are almost always for the ones who had patience and stuck to their strategy – By Charlie Munger
Priti Goel is the Founder, CEO and MD of Prisha Wealth Management Private Limited.
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Published: 07 Apr 2024, 12:42 PM IST