Warren Buffett, one of the greatest investors of all time, has a one simple rule as far as investment goes- Never lose money.
Rule #2 is even simpler- never forget rule #1.
What throws a spanner in the way investments work is the fact that no investment vehicle is entirely risk free. While we should aim at maximizing returns by investing in assets like equity, we should also aim to curtail losses.
Tips to minimize losses while investing
# 1. Allocate your short term investments (less than 5 years horizon) to debt instruments such as debt mutual funds or Fixed Deposits. Debt investments are less volatile and hence can minimize probability of losses.
# 2. Allocate long term investments (more than 5 years) to equity instruments like stocks or equity mutual funds. Over the long term, even with the market volatility, equity investments give you inflation beating returns.
# 3. Diversify your investments. But don’t overdo it.
# 4. When investing in mutual funds, always take a look at its prior track record. Prioritize funds that have a track record of consistent performance for at least 5 years.
# 5. Don’t try and time the market. Invest in a disciplined manner irrespective of market conditions. Whether RBI cuts interest rate or the market goes down, as long as you invest in a disciplined manner, you will get good long term returns that beat inflation.
Remember this: It’s not your personal risk profile that matters while investing; it’s the risk profile of your goal that actually matters.
#6. Don’t follow an “invest and forget” strategy. You need to track your investment’s annual performance and rebalance your portfolio based on the same performance.
#7. Keep your finances simple. Use automated tools to invest and track your mutual fund investments safely and with the minimum overhead.