Stay The Course

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

One of the key factors that can help you achieve your investment goals is to have a clear roadmap. It’s important because investing haphazardly can create a gap in what you set out to achieve and what you achieve after completion of your time horizon. Considering that you may have different investment objectives covering varying time periods, your investment strategy should define how much to invest, how to invest i.e. lump sum or systematically and above all, when to exit.

It’s important to be prepared to face various challenges that you may encounter from time to time. One of the major challenges could be handling volatility in the markets i.e. both equity as well as debt. The surprising part is that though ups and downs are a common part of investing, not many of us have the temperament and the skill to handle them. The truth, however, is that if you invest in equity as a part of your retirement planning, you should not bother about the movements in the stock prices on a day-to-day basis. The focus should be on the quality of the portfolio and the right mix of asset classes in it. 

Time diversification i.e. remaining invested over different market cycles is another important aspect of investing. It helps reduce the risk that you may encounter by investing in or selling a particular investment or a category of investment at a bad time in the market cycle. It has much more of an impact on investments that are volatile, such as equity or equity fund. Remember, your time horizon begins when you invest the money and ends when you need to take the money out. The length of time you remain invested is important because it can directly affect your ability to reduce risk. 

Longer time horizons allow you to take on greater risks in order to improve your total return potential. Some of the risks can be reduced by investing across different market environments. If you follow a goal-based investment strategy and plan your long-term investments well, you won’t really have any liquidity needs except for short-term emergencies. However, if you are either on the verge of retirement or are already retired and largely depend on your investment income, you will have greater liquidity needs.

"If you follow a goal-based investment strategy and plan your long-term investments well, you won’t really have any liquidity needs except for short-term emergencies"

As is evident, planning for different goals to be achieved over different time horizons and setting money aside for them ensures that your investment process continues sans interruption without having to worry about the sudden requirements. Another challenge is to resist the temptation to switch to more conservative investments in a down market. No doubt the fall in the value of the portfolio along with the negative news flows increases the anxiety levels. However, by exiting from the market, you can miss out on a significant part of a market rally.

While your intention may simply be to wait out a declining period and then get in when the time is right, this strategy can more often than not backfire. Remember, a haphazard and extremely cautious approach can expose you to the risk of falling short of a long-term financial goal. We often forget that market ups, downs and bounce-backs present great buying opportunities for a long-term investor. Therefore, investing in a disciplined way during these periods can be quite rewarding. However, investing short-term money into equity or equity funds in the hope of making a quick buck can backfire. Therefore, if you feel compelled to make changes in your portfolio during market upheaval, focus on your investment goals and portfolio mix to stay the course.