The ball has been hit high. Will it get caught or cross the boundary line?
Yes, it’s the cricket mania and there is a lot of excitement in the air, as the Indian Premier League (IPL) thirteenth season kicks-in. Here are some quick investing takeaways:
1. Start early
The initial overs of the power play are the best time to make a thumping start. Many a time, the runs scored in these overs decide the destiny of the match.
Similarly, when it comes to investments, you need to start as early as possible. For one, being young with little financial responsibilities lets you save more towards your financial goals. Furthermore, it helps you reap the power of compounding.
2. Have a game plan
After reading the pitch and weather conditions, the captain chalks out a game plan. If it’s a hard wicket, he looks to score more and fixes a stretch target for his batsmen to achieve.
Similarly, you need to have a financial goal – be it for retirement or child’s education - and work towards it meticulously. A targeted retirement nest, for instance, will give an inkling of how much you need to save every month based on your risk-taking appetite. In this master plan, inflation is the potential opponent that needs to be out-witted like a rival in cricket.
3. Diversify your bets
A team needs to have a good mix of big hitters, fast bowlers & spinners, all-rounders as well as young and the experienced. It ensures variety and an ability to tackle every situation.
Similarly, you need to choose an asset allocation that suits your risk appetite. Equities will beat inflation, while debt provides a downside protection albeit with relatively lower returns. You need to choose an appropriate mix of equity, debt and liquid assets that will help you weather all market storms.
4. It’s all about behaviour
Few quick wickets and the tides quickly turn. If the players lose their cool, the match is gone. There are many instances of seasoned players keeping their cool in times of crisis and managing to snatch the match away by the skin of their teeth.
So, don’t let your emotions rule your investment behaviour. Equity market will go up and down and witness bouts of volatility in the short-term. By staying ‘cool’ and invested for the long-term, you can stay ahead of the curve.
5. Consistency wins
The top-scoring batsman and the highest wicket-taker get an orange and purple cap respectively. Donning these caps calls for consistency in performance and captains constantly scout for such dependable players.
Similarly, there are mutual fund ratings which assign five stars to funds that consistently come out toppers. Investing in them has the potential to outperform markets over the long-term. However, like for players, past performance is not indicative of its continuity in the future.
6. Take a pause
In a strategic break, captains get back to the drawing board, seek feedback and mend strategies. A poor run-rate, for instance, might result in sending pinch-hitters early and adopt an aggressive stance.
Similarly, you need to periodically review your mutual fund portfolio. If the goal posts have changed, you might have to step-up your SIPs or increase exposure to equity or midcap funds.
7. Provide for contingency
One bad over can do the damage. So, a captain needs to have an alternate strategy in place to counter-attack, if ace bowlers have failed to deliver. Will he introduce spinners or change the field placements? All depends on the situation and there is no guarantee it will work.
Likewise, life might throw a lemon at you in the form of job loss or medical emergencies. It can jeopardize your existing investment plan and put your family at high financial risk. By building an emergency fund of upto six months of expenses and by insuring yourself, you can mitigate the risk.
8. Disregard the noise
When the batsman is on the crease, there is too much distraction– be it the trumpet blare or the cheer girls. If he plays to the gallery, he could lose out. Out-of-the-stadium six is not necessary when ones and twos will do.
Similarly, you need to cut the market noise and refrain from timing the market. Many experts forecast the short-term movement of the stock market without realizing that it is unpredictable. Hear them out on the mute while continuing to SIP in equity funds.
9. Hire a coach
Hiring a coach often brings a fresh perspective and experience, which can act as a great differentiator. Sometimes, a team needs a third-party to critically analyze their strengths and weaknesses and to work on their flaws.
Similarly, hiring a certified financial advisor can help you identify your financial goals and your risk appetite. They can understand your financial needs and accordingly chalk out a financial plan.
Investing like IPL matches can be an emotional roller-coaster. Have a game plan and stay put to emerge a clear-cut winner.