Diwali is a great time to examine what are the best investment strategies and practices for becoming wealthy. Here's how you should invest in stock markets.
Diwali, the Festival of Lights, is also the day when we worship Goddess Lakshmi for wealth and prosperity. Thus, it is a great time to examine what are the best investment strategies and practices for becoming wealthy.
To begin with, we should consider ourselves lucky to be living and investing in a very large, stable country like India. Advantages are many, including a large variety of investment options and continuity of economic growth in a stable, sustainable way. Unlike many Latin American and some Asian countries, we do not bear the brunt of colossal fiscal mismanagement, sovereign defaults, soaring inflation or huge currency depreciations. Equally important is that unlike many countries of Europe, we continue to expand our GDP at a very respectable rate. All this is happening in a democracy accompanied by parliamentary and judicial checks and balances. Hence no surprise that we continue to benefit from robust financial markets.
Keeping the above strengths in mind, equity remains the best investment option for us. While investing in equity generates smart returns over a period of time, there are a few precautions which investors need to keep in mind.
Invest amount you can spare
Firstly, invest only the amount which you can spare for a very long period of time. Having no time constraint will allow you to bear with all the volatility and uncertainties which the stock markets keep throwing up at regular intervals.
Ignore surrounding sound by media, analysts
Secondly, we must train ourselves to ignore the surrounding sound created by media and analysts both in bullish and bearish times. Nothing lasts forever and excesses always adjust over a period of time. Therefore, use bullish times to book profits and bearish times to add to your portfolio. Here again have the knowledge that nobody can accurately time the markets. Hence after buying be mentally prepared to see lower levels for some time. In the same breath, after selling don’t be upset to see higher levels in the near future.
Know what you are buying
Third universal rule is to know what you are buying. Either do your own research or rely on proper guidance by an established financial advisor. The first two rules mentioned above can never be followed unless your decisions are backed by solid research. There are periods of dullness as well as volatility during which it is impossible to cling on to your investments, unless they are backed by conviction, which comes only with through knowledge of what you have bought.
Review your investments
Fourth important principle is to keep reviewing your investments. Changes in the economic environment and policy framework can alter the outlook of several companies. A regular review is, therefore, very important to weed out stocks that are no longer fundamentally sound or have become expensive.
Diversify your portfolio
Lastly, diversify your portfolio across sectors and categories. We are living in an age of disruption. It is impossible to predict the future accurately of any sector or economic activity. Diversification is the best way to hedge yourself from the disruptive changes happening continuously around us.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)