5
evergreen investment tips towards long-term wealth creation
Chasing returns is a huge mistake as it makes you worry about
daily/weekly/monthly performance. What matters ultimately is whether your goals
are met in time.
Most investors invest with the thought of making as much gains
as possible. However, having unrealistic expectations from your investments can
lead to disappointment, especially when the instrument you are investing
provides market-linked returns. So, how would you analyse whether you are
getting good returns on your investment? One way is to link the expectations to
a financial goal which has a certain time horizon for its accomplishment.
It is advocated to follow the Plan-Process-Product approach where the
focus of investing is goals. This involves identifying goals, which is the most
crucial step. Next is strategising in terms of determining the financial cost
of goals, risk behaviour and contributions required. “Product consideration,
i.e. the funds or individual instruments, should come only in the final stage.
Investments did this way will seldom go wrong,” he added.
Here are 5
things to keep in mind while investing to maximize your returns and have your
goals fulfilled:
Define your goals and invest accordingly
Adopt the
“why” (goals) – “how” (process) – “what” (product) approach. “The industry
mechanism is built to portray highest returns as the criterion for measuring
investment success. Chasing returns is a huge mistake as it makes you worry
about daily/weekly/monthly performance. What matters ultimately is that your
goals are met in time. To develop this mindset, focus on goals and understand
your risk profile before selecting products.
Understand the risk factors
It is human nature to
get carried away by thinking of rewards and recognition before we even start
our journey towards achieving those milestones that may potentially bring us
those coveted rewards. This is even applicable to the way we spend or manage our
savings.
A lot of people in their
30s suddenly realise that they haven’t started their investment
planning/retirement planning. “The most common mistake these people make is that
they jump into an investment product blindly. Savings and Investments aren’t
one-time actions. It’s a process and needs to become a habit. Understanding
risks involved is a very important aspect of investment planning. Know the
worst that can happen to your money. Don’t always think of the possibility of a
rosy scenario only. Plan your investments based on risks involved with clear
objectives and the rewards will come,” he said.
Have a long-term outlook
Timing investment is
logically impossible because the best entry and exit opportunities are known
only in hindsight. No one can predict market movements with certainty. However,
it can be expected that markets will give positive returns in the long term.
Therefore, what is important is to allow your investments to compound over a
long time.
Know what not to focus on
Sometimes the process
of elimination works best in decision making. A
decision on where and when to invest can be a complex decision for all of us.
It’s best to eliminate some of the lesser relevant variables in this process.
Identify the lesser relevant variables first such as which month you will start
your investment, NAV of a mutual fund scheme, Exit Load of a mutual fund when
you’re looking at long-term wealth creation, short-term performance of a fund
when you’re looking at long-term wealth creation. Always keep the larger
picture/objective and eliminate the distraction in your decision-making
process.
Seek advice from professionals
Investors today are constantly bombarded with recommendations
on “the best” stocks, funds and insurance. Finding out what is good for you
can be a little tricky because it requires an understanding of the basic nature
of the product and matching suitability with your needs and circumstances. Your
best bet is to consult a trustworthy financial planner.
Happy Investing
Source:Moneycontrol.com
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