Investment is, any asset or instrument you buy, to sell at a higher price in the future. The idea is that the gains you make help you meet the needs of future income or achieve varied financial goals.
Investing is not infallible and some of the best investments can turn bad. An investment portfolio thus needs regular monitoring and pruning to stay on course.
Besides investment choice making and monitoring, investment actions can also impact wealth.
Here are some of them that could prove detrimental to your wealth creation process:
Picking the market fad
Some invest in New Fund Offering (NFO) or funds that are creating a lot of buzz in the market. Off late, it is international equity funds that are in the limelight. As a category, they are doing better than Indian equity funds in the last three years.
While the need for geographical diversification has now seeped into Indian investor’s consciousness– which is good – the bigger question is whether they are investing as part of an elaborate investment plan or not?
Random investing here and there based on recent performance can prove disastrous as more often than not they end up catching the fad by its tail.
Are you constantly switching from one fund to another based on its short-term performance? While constructing equity portfolios, fund managers largely invest with a time horizon of three or more years.
And if you sell before that, you might actually lose out on an opportunity to witness actual growth. Often stock price appreciation happens in turns – with one sector seeing momentum before another.
So, if you prematurely exit before a trend changes, you might lose out. So, stay put and exit a fund only if it consistently does badly.
If you are investing in equity funds, investing in more than six is bound to show significant overlap. The more you diversify, the more of the index stocks you will own. And after a point, you might be better off investing in an index fund, since you anyway hold most of its constituent stocks and index funds are relatively cheaper.
Rather than just diversifying, look for diversity. Endeavour to diversify across asset classes – equity, debt, and cash and among sub-categories (say large-cap, mid-cap etc).
Acting on noise, not news
A big FMCG company misses the earnings estimate by 5% and its stock prices take a beating. Many analysts now put a ‘sell’ recommendation as experts’ debate about the end of consumption theme on television.
Should you be selling its stocks? As investors, you need to probe if there has been any material difference in the long-term earnings power of the company.
Understand if the company’s ‘fundamentals’ have actually been altered because of certain events. Else, ignore the noise.
Many investors prefer investing on their own in stocks and mutual funds. If you are a financial expert and have adequate time to do the research, then go ahead. However, if time is a constraint, it is better to leave it to experts – albeit for a fee.
A good financial wealth advisor – while charging you for his services – also efficiently channelizes your savings into various investments according to your financial needs and goals.
By resorting to scientific portfolio rebalancing or course correction, they more than makeup for the fees charged to investors.
Keep a tag of your investment actions without losing sight of long-term interests. Ignore noise and short-term-isms to achieve financial goals, with certainty.
Ensuring your investment actions are right for you can be a challenging task. Wealth Management firms like Scripbox help you navigate through these challenges easily. Learn more about how we can help here.