of 2014, it would essentially be important to control all investment decisions using a calm head and not flow with the market sentiment. For being a successful long-term investor one needs to look at the bigger long-term perspective than the smaller phases.
Diversify smartly: Diversification plays a very important part in overall long-term wealth creation. Instead of focusing on only one set of investment, like equity markets alone, the best way is to hold a diversified overall investment portfolio. Investing in exchange-traded funds (ETFs), mutual funds, debt funds and real estate are some of the options that every investor must consider before finalising the share for each sector. Even in the equity sector, the companies must be selected in such a way that majority of the sectors that are likely to offer substantial gains are included in one’s financial domain.
Infrastructure, for example, is paramount for India’s success and both the current government and the prime Opposition party have stressed the importance of attracting investment in the sector. Investing in infrastructure offers a better chance of attaining wealth creation in the long term. The selection of sectors will make a huge difference and importance must be given to each sector by understanding the market dynamics for the sector.
Average out losses: One important aspect each long-term investor needs to follow is the principle of averaging out stock losses over time. If you are holding on to a company share which is dipping below your purchase price substantially, selling the stock as a knee-jerk reaction would offer substantial loss. A better way is to keep purchasing the share at lower levels to bring down the average purchase price of your overall share portfolio for that company. In case you believe in the fundamentals of the company and its ability to bounce back and perform in the long term, such averaging out of share prices can in fact be beneficial for better wealth creation in the long run.
The writer is CEO, BankBazaar.com