Investing Principles That Can Make You A Winner

One of the key challenges for investors is to make the right investment decisions in today’s ever-changing and complex investment environment. While they have plenty of investment options to choose from, it can be quite overwhelming to pick the right ones and work out an investment strategy to keep the portfolios on track. If you are someone who is either looking to start your investment process or to bring it back on track, here is what you need to do. [EasyDNNnews:PaidContentStart]

Plan your investments well
You must avoid making ad hoc decisions at the start of your investment process. Some investing principles like establishing investment goals, following an asset-allocation strategy and putting an investment process in place must be followed. If you do not, you may end up building a portfolio that could either be too conservative or too aggressive. Both these situations can jeopardise your financial future. Therefore, the risk tolerance and investment objectives should get the top priority while working out allocation to different asset classes, i.e., debt, equity and gold or silver. Remember, an asset allocation strategy can help you achieve realistic financial goals, within the defined time frame, and that too without losing sleep. 

Time diversification holds the key
Time diversification, i.e., remaining invested over different market cycles, is particularly important, especially when you invest in market-linked investment options like mutual funds. It works in your favour since it mitigates the risk that you may encounter while entering or exiting a particular asset class at an unfavourable time in the economic cycle. Besides, longer time periods smooth those fluctuations. 

The length of time to achieve each of your goals is important because it can help you reduce risk. For example, longer time horizons allow you to take on greater risks, with a greater potential to earn better returns as volatility risk can be tackled by investing across different market cycles in a disciplined manner. On the other hand, if your time horizon is short, you would have greater liquidity need and hence the focus should be on liquidity with reasonable certainty of safety of capital. 

Invest to earn real rate of return
Considering that inflation eats into a substantial part of your returns over the years, an asset class like equity that has the potential to beat inflation in the long run should be the mainstay of your portfolio. Besides, investing in equity funds is more tax-efficient as compared to most of the traditional options and that plays a crucial role in improving your real rate of return in the long run. 

Be a disciplined investor
One of the key factors that can help you build wealth over time is to have discipline in your savings and investment process. Thankfully, investors in our country are realising the benefit of systematic investing and that shows in ever-increasing SIP numbers. Since SIP requires you to commit to investing a fixed amount on a fixed date, it not only helps you save every month but also avoids the temptation to time the market. In fact, over a period, this approach turns volatility in the stock market to your advantage as you benefit from ‘averaging’. Another important factor is to start investing early. Remember, a disciplined approach as well as starting the process at an early age can go a long way in building a retirement kitty large enough for you to have freedom from the retirement blues. 

Choose your funds carefully
While asset allocation is important in your investment process, it is equally important to invest in funds that can get you the best from the chosen asset classes. Many investors make the mistake of relying on short-term performance as the sole criterion for selection. A strategy like this can compel you to invest in some of the aggressive categories such as sector, thematic and factorbased funds. While past performance certainly has a role to play in the decision-making process, the focus should be on analysing the consistency and long-term performance. 

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