The wealth creation process requires a regular review of the investment portfolio. This can be done on a half-yearly or yearly basis. Last year almost at the stating of the calendar year or at the starting of Financial year we reviewed our investment portfolio and start investing according to the market trends. Many investors follow the DIY (Do it yourself) approach for their investment. Many times they get carried away with the running market flow. Actually, investment should always be linked to your life goal’s but it is being observed most of the time investment is not done in accordance with our financial goals.
So those who were investing just looking at the market trends at the beginning of the year with the intention to earn a high return by riding the upward wave in share market were badly fell on the ground in the month of March because of the Corona crisis. The turmoil in the market eroded their portfolio by nearly 40% in a single month. It was a super shock because of this unforeseen event.
What lesson a retail investor has learned from a sharp downturn in the share market? One important lesson we all have learned is that our risk tolerance level is not as high as we assume in the short run. We get often worried when our returns go down. We get panic when we see negative returns in our mutual fund portfolio, which leads to anxiety and confusion over our financial decisions. This all happens when we don’t follow the Goal-Based Investment pattern and Asset Allocation pattern as per our risk profiling. So in the end, we incur losses in the short term.
It is been observed that many times DIY investors make an impulsive investment decision based on a friend’s or colleague’s advice or do random investment as per one’s convenience. So an investment portfolio based on this style lacks vision and it is just a ‘coincidence’. It can lead to huge losses in the short run and may lose compounding benefit in the long run if the regular investments are stopped suddenly and liquidated in fear. Everyone wants to invest in Bull Run and very few have the ability to be patient in the bear run and stay invested.
2020–21: Dos and Don’ts for long term investors
Where to invest your hard-earned money in the remaining months of 2020? Is the basic question every investor has in his/her mind after experiencing market volatility till now? It is already half a year has passed. And since the last few days, we are experiencing quite a big turmoil in the Indian stock market. Uncertainty has not over yet. Sensex and ground reality does not match with each other. So the volatility remains throughout this year.
One thing to remember: Long term investment does not depend on short term market volatility. An investor should focus on long term wealth creation. In DIY s approach while constructing your portfolio one should focus on financial goals, risk profiling, investment horizon, and tax implication and then select a suitable financial product.
So to summarize, remember the following points before investing in this financial year.
• Be financially literate, do your risk profiling and study the financial product before investing.
• Focus on goal-based investment.
• Don’t blindly follow market trends. Before buying any product check whether it is suitable for your investment strategy.
• Stick to your asset allocation
• It is always advisable to consult a Financial Advisor before investing.
Six months of 2020 already passed. The economy is under pressure and we are on the verge of the global slowdown in the market. Does long term investors should be worried? My answer is NO. If you are investing in the market through SIP for the long term view this is the best time to enter or if you are already invested then it is the best time to keep your SIP going. You can top up too. This helps you to accumulate more units when the market is low and then in the future, you can reap the benefits.
The investment process is a marathon, not a sprint. An investor should always focus on long term wealth creation. The investor should learn from his/her mistakes and try to rectify it in the coming years.
A glorious future is always waiting for you. Be focused! Be disciplined!