Your Money: Patience in investing process key to building wealth

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November 17, 2021 12:45 AM

Over the last few years, the categorisation has been made more transparent to enable investors to make optimum decisions.

mutual funds, investment schemes, large cap, mid cap, hybrid schemes, money managementThe investment process and methods need to be simple to understand and easy to execute.

As an investor, today you are spoilt for choices. Choices as to which asset class to invest, through whom to invest, which services to choose and how much to allocate. Add to it , you also have news channels, social media platforms—all of which provide information,  data and updates round the clock. Does this now make your investing process easy or difficult? The last 18 months has contributed to the rapid increase in choices. So, has all of these made you a better investor or made your investing process more efficient? The answer to that is: depends.

Allocation of funds

If you look at the evolution of mutual funds in India, investing in large cap, multi-cap, mid-cap , small-cap , hybrid schemes were all available in various forms. Over the last few years, the categorisation has been made more transparent to enable investors to make optimum decisions. This move has helped the investors to allocate the funds in a more efficient manner, depending on the risk appetite.

Besides the sector-specific funds, now there are geographic specific funds, which allow you as an investor to take part in investment options globally. This is again a welcome move. The investment process and methods need to be simple to understand and easy to execute based on the investing needs.

For a newbie investor, who has recently started earning an income and wants to set aside a certain part of the income for investments, this can be confusing. With so much data and information available, decision paralysis creeps in and in turn can lead to a sub-optimal investment decision.

Patience and process

In this case, the latest fad or latest return can well influence the prospective investor to make a decision which need not be the right investment choice. A successful investor need not have the highest IQ (Intelligent Quotient) , but having patience and a process is a must.

The most important part an investor needs to do is know thyself. As an investor, you need to know what makes you tick; as in:

Are you prone to looking at price movements on a regular basis and do you like to encash the profits at regular intervals?

How would sharp movements in prices affect your thought process?

Can you sit on price mismatch in stocks for a period which can be a few days only or can go up to a few months?

The above is only an indicative list. The point to note is that as an investor it is your Emotional Quotient (EQ) which will drive your investment return. Time and again, it has been observed that constant buy and sell in an account does not benefit investors much. The transaction cost eats up much of the gains. The benefit of power of compounding accrues only over a longer period of time.
One should not be confused with activity and action. An inactivity is also an action as long as one is clear as to why one is inactive. Wealth creation is a marathon and not a sprint. Start early and small, if required, but do start.

The writer is managing partner, BellWether Associates.

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