Common sense, logical thinking, patience, mental balance and emotional intelligence are of essence.
By Jimmy Patel
Investors now are virtually on a rollercoaster ride. The wealth creation journey does not look easy in 2020. Having said that, there appears a silver lining to the dark depressive clouds, and wealth creation opportunity does exist. Here are five things investors must do now.
Switch off the noise and panic
When the market is euphoric or gloomy, investors tend to give in to their emotions because the psyche overpowers rationality. And this is when most often things start going wrong for their investment portfolio. Stay away from the noise and panic. Investing is not about beating the market or anybody else, it is about building wealth with common sense, logical thinking, patience, perseverance, mental balance, emotional intelligence, and performing under stress.
Focus on your financial goals
Remain focused on the end goal of wealth accumulation and accomplishing financial goals using a financial plan. In this entire exercise of capital preservation, there is no one-size-fits-all approach. Your financial plan is unique and customised to suit your needs and wants.
Review asset allocation
Asset allocation is the cornerstone of investing. Different assets have different moods based on market fluctuations, but a proper allocation across asset class and investment style may protect you from significant ups and downs of any single asset class and scheme in your portfolio.
Ensure optimal diversification
Once the asset allocation is set right, care should be taken to ensure that within every asset class as well, the portfolio is optimally diversified.Diversifying the portfolio across geographical regions and countries may reduce the risk and improve the potential to clock optimal returns.
Portfolio review and rebalancing
The performance of your overall investment portfolio weighs on the investment avenues held. In times when the returns are inconsistent over a long period of time for equity and debt investments, carry out a comprehensive portfolio review and rebalance the portfolio. In the current scenario, diversify across market capitalisation while investing in equity-oriented mutual funds via a multi-cap fund, holding some proportion of your equity allocation in a large-cap fund, mid-cap fund, as well as a value style fund. Ensure you have a high-risk appetite, investment time of at least 7-8 years, and select the best schemes.
Likewise with credit risk getting amplified while approaching debt and money market mutual funds, it would make sense to have exposure to a pure liquid fund (that does not take exposure to commercial paper issued by private entities) and be exposed to the short-end of the maturity curve. And do not forget to allocate 10-15% of the entire investment portfolio to gold through a Gold ETF and hold it with a long-term investment horizon. The precious yellow metal would display its lustre during uncertain times.
The writer is MD & CEO, Quantum Mutual Fund