Invest with a time horizon in keeping with risk profile

So, in such volatile markets and the enveloping cloud, what should an investor do? The one thing constant in life is change. However, what has not changed are the principles of investing. Invest with a time horizon according to your risk profile, with an asset allocation of the investments and taking into account your liquidity needs in the near and medium term. While, this is easier said than done, an investor need to exercise discipline.

If you have a surplus or if you want to invest systematically, do not go ahead and invest based on ?tips?, or what your immediate neighbour or office colleague has recommended. Do remember just as the each fingers in your hands are not alike, similarly, the investment needs of each one of you is different. One size fits all can never be the mantra in investing.

If your colleague?s risk appetite is more, the investment products in his portfolio would be tilted in favour of high risk?high return products and if on the other hand you are a risk averse investor, the portfolio, should be structured accordingly and you should not replicate his portfolio. Similarly, in investing, if you do not know the goal for the investments, its akin to what Alice asked the cat in Alice in Wonderland ? which road to take. The cat replied, ?If you don’t know where you are going, any road will get you there.? During the last one year, the euphoria has been replaced with gloom and fear. And for an investor, there is no better time than now.

Taking Stock

Before the anvil of this festival of lights, you tidy upon your house, some of you give it a fresh coat of paint. Similarly, have a look at your investment portfolio, check out the ones which are underperformers or would continue to underperform, increase the holdings of the better performing investments. If you are unable to carry out this exercise, on your own, hire a financial planner and investment advisor, whose interests are tilted in your favour and carry out this important activity. When the markets are down and when the economic situation is overwhelming, you do not want to look at your portfolio, especially if its in the red because the pain of loss is twice the joy of the gains. And this is precisely the time, when you should revisit and ensure that you carry the portfolio rebalancing exercise.

Next Steps

Just as the old order changeth and brings in the new, similarly lets take the pledge and resolve to carry out the investments on the following lines. These are only indicative and can be used as a basic guideline:

Save minimum 10% of the monthly net income for investments. For each of the investments already carried out, it is important to tag it with a goal. All investments need to have a target date both beginning and end date.

Do not invest only in one product. Diversify across asset class, taking into consideration your risk profile. In the last one year, equity has delivered a negative return exceeding 20%, Debt instruments gave a positive returns of around 8-10%, gold around 33%, property around 20-50% or in some cases even more depending on the location. So, an appropriate asset allocation will ensure that both, wealth creation and wealth protection, can be carried out. Do not fall in love with your investments.

Review your bank statements at least once a month and your investment portfolio if not every but at least every quarter. Investing is a full time activity. Before engaging a professional ask questions about the product, about its suitability and why the particular recommendation. Just as you shop around when you buy your personal attire, do ensure that you carry out this activity for investments too.

So, while investing, remember what Buffett said, ?When forced to choose, I will not trade even a night?s sleep for the chance of extra profits.” Investing is not a 100 metre dash, its akin to a marathon .

* The writer is founder and managing partner of Zeus WealthWays