1. Have an investment objective in place: All individuals have unique sets of needs like providing for children education/marriage, buying a car/house or traveling abroad, among others. Individuals must prioritise their goals and develop portfolios dedicated for achieving the same. Investing in an ad hoc manner could mean that investors fail to achieve their stated objectives. For example, if building a corpus for children's higher education, then make an investment plan to achieve the same and invest in line with the plan in a disciplined manner.
Define and set clear goals, happy go lucky attitude may not always work for you.
2. Recognise the risk profile and adhere to it: Investors should be clearly aware of their risk profile while making any investment decision. Broadly speaking the ability to take on risk reduces as one ages. Thus, it should be understood that each individual has a unique risk profile and recognising the same should be the first step. For example, two individuals with similar age profiles, but with disparate risk profiles is not an uncommon scenario. Investors need to invest in investment avenues in line with their ability to take on risk. Hence, a risk-taking investor is likely to invest mainly in instruments like equities and equity mutual funds. On the other hand, risk-averse investors should hold a portfolio dominated by assured return instruments like fixed deposits and small savings schemes.
Remember the age old proverb, 'Live within your means'; do not go overboard and invest in asset classes whose risk profile does not match with yours.
3. Don't ignore asset allocation: Asset allocation is a crucial exercise to follow while investing . Investing a large portion of the portfolio in the same asset class can prove to be a risky proposition. Diversifying your investments across asset classes like equities, fixed income instruments, gold and real estate among others is important. A well-diversified portfolio helps investors diversify their risk across various asset classes so that volatility in any one asset class does not put the entire portfolio at risk.
Do not keep 'all your eggs in one basket', remember diversification is the key.
4. Track your investments: Making investments to achieve one's investment objective or goal does not bring an end to the investment process; it is rather the beginning of the journey to wealth creation. Investing is an ongoing process; investors need to continuously monitor the performance of their investments. This will ensure that they are updated with respect to their portfolios. It also gives them an opportunity to make necessary alterations to their portfolio in case some investments have failed to deliver.
Remember being alert about the performance of your investments goes a long way in making smart decisions.
5. Select the right investment advisor: This is a very crucial decision to make as there are dearths of investment advisors who are self-centric and do not keep investors interests' in the forefront while carrying out their advisory services. Every investment avenue needs to be well-researched before making an investment. But, there are only a few investors who actually research the avenues they wish to invest in; this is mainly because they either don't have the time or the expertise to do so. Hence, the service of an unbiased and a professional advisor is imperative. Half the battle is won when investors are guided by such advisors as the investment decisions are made on the basis of solid research and keeping the interests' of the investor at the forefront.
PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm.
No comments:
Post a Comment