Here’s how to find out if what you’re doing with your investments is actually helping or hindering your wealth creation.
An investment is any asset or instrument that you buy to sell at a higher price in the future. The idea is that the profits you make will help you meet future income needs or achieve various financial goals.
Investing also subjected to market volatility and some of the best investments can go wrong. An investment portfolio thus needs regular monitoring and make sure to stay on course.
In addition to making investment decisions and monitoring them, investment actions can also affect wealth.
Here are some of them that can prove detrimental to your wealth creation process:
Picking the market buzz everytime
Some invest in New Fund Offering (NFO) or funds that create a lot of buzz in the market. Recently, it is international equity funds that are in the spotlight. As a category, they have outperformed Indian equity funds over the last three years.
While the need for geographical diversification has now penetrated the consciousness of Indian investors – 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 would be disastrous as more often they might not end up having high returns.
Exiting funds based on market volatility
Are you constantly switching from one fund to another based on its short-term performance? When building stock portfolios, fund managers mainly invest with a time horizon of three years or more.
And if you sell before then, you may actually miss out on the opportunity to witness real growth. Share price appreciation is often staggered – one sector gains momentum before another.
So, if you prematurely exit before a trend changes, you might lose investment. So, stay put and exit a fund only if it consistently does badly or with your mutual funds distributor’s advice.
Over-diversifying
If you invest in equity funds, investments in more than six must overlap significantly. The more you diversify, the more index stocks you will own. And after a certain period of time, you might be better off investing in an index fund because you hold most of its shares anyway and index funds are relatively cheaper.
Rather than just diversifying, look for diversity. Try to diversify across asset classes – equity, debt, and cash and among sub-categories (say large-cap, mid-cap etc).
Acting on noise, not news
The FMCG major is missing profit estimates by 5% and its share prices are taking a beating. Many analysts are now giving a “sell” recommendation as the expert debates the topic of the end of TV consumption.
Should you sell its shares? As investors, you need to examine whether there is any material difference in the long-term earning power of the company.
Understand if the company’s ‘fundamentals’ have actually been altered because of certain events. Else, ignore the noise in the market.
Do-it-yourself
Many investors prefer to invest in stocks and mutual funds themselves. If you are a financial expert and have enough time to do your research, go ahead. However, if time is a constraint, it is better to leave it to the NISM certified mutual fund distributor – even for a fee.
A good financial advisor – while charging you for their services – will also efficiently channel your savings into different 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.
Takeaway
Keep track of your investment actions without losing sight of long-term interests. Ignore the noise and short-term isms to reach your financial goals with confidence.
Making sure your investment actions are right for you can be a difficult task. But you can seek help of a NISM certified mutual fund distrubtor’s help. Invest in assisted mutual fund portfolios and achieve your financial goals with ease.
