Hasty Investment Decisions Can Backfire

Most investors focus on what they need to do to achieve their investment goals, improve portfolio returns and maintain a balance between risk and reward. However, despite starting their investment process well, some of them are often guilty of making haphazard investment decisions at different stages of their defined time horizon, and thereby disrupting their investment process. If you are looking to achieve consistent investment success, here’s what you mustn’t do. 

Don’t Panic During Market Volatility

Market volatility can test your patience and perseverance. Investors who are relatively new to investing in equities often panic and end up making some haphazard investment decisions. It’s not that you shouldn’t be worried about what is happening in the stock market. The key is how you react to the market volatility. Any panic decision, in such a situation, can impact your asset allocation and the ability of your portfolio to deliver the desired results. 

Someone who has spent time in the stock market would know that it is quite normal for it to go up and down during certain time periods. Therefore, while a seasoned investor may take volatility in his stride, a new investor could get tempted to react in a manner that may be detrimental to his fortunes. Remember, if you remain invested and continue your investments uninterruptedly, you minimise your chances of missing out on the sudden rallies in the market. 

Don’t Look at Your Portfolio Daily

Despite committing to invest for long-term in equity funds, investors usually have the habit of looking at their portfolio valuations quite frequently. In fact, some even look at it every day. This impacts their psyche in different ways depending on the market conditions. When the stock market does well, they feel like putting more and more money into equities which creates an imbalance in their portfolio and exposes them to higher risks. Similarly, when they look at their portfolios on a daily basis in a falling market, it creates self-doubts in their minds and they either feel the urge to exit from their equity investments or stop investing. Therefore, while monitoring the progress of the portfolio is important, doing it on a daily basis doesn’t help and hence must be avoided. 

Don’t Try to Time the Market

Some investors often consider a falling market to be a great investment opportunity. In reality, this can be quite a risky investment strategy as it is extremely difficult, if not impossible, to predict short-term market movements. Similarly, any attempt to book profit in a rising market with the intention to reinvest during a fall in the market in the near future can backfire. Remember, even full-time professionals like fund managers find it difficult to time the market successfully on a consistent basis. Of course, if you have an investible surplus that can be put aside for a longer term, it can be invested as a combination of lump sum and systematic investing through systematic transfer plan (STP). 

Don’t let Focus Shift from Your Goals

It’s a proven fact that investors who follow a goal-based investment process are better equipped to tackle the vagaries of the stock market, as compared to those who don’t have an investment plan in place. The best thing about following a goal-based investment process is that it helps you decide your asset allocation. For example, for short-term goals, the money is invested in Debt Funds while Hybrid Funds are chosen for the medium term and equity for the long term. As is evident, it’s important not to lose focus during market uncertainties. Remember, investing through different market phases ensures that you benefit from the law of averaging. It will help you maintain the desired balance between risk and reward.