5 Investing Habits To Kill Ravana In Your Mind Forever This Dussehra
Here are the habits which help in navigating the complex investing landscape today.
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Ravana was a knowledgeable man, among the mightiest in his era, yet he made grave mistakes which led to his demise. Similarly, regardless of one’s knowledge of markets and investing one may experience problems which are self-created. This is more so in today’s age of instant information as deep changes are difficult to master.
What are the habits which help in navigating the complex investing landscape today?
1. Maintain your asset allocation
In the festive season, all of us have a temptation of overindulging on our favourite sweets. We know what happens next week; the weighing machine shows the truth.
Similarly, in a market cycle as long as you are not overindulgent on a particular asset class one is likely to wade through the tide.
What if the economy is going through a credit crisis?
Many people have experienced pain in even debt funds. A proper framework is to look at a mix of overnight and liquid funds if safety is your primary concern.
If you are open to some risk then short-term funds may be considered. Income funds and long-term corporate paper is not advisable. Anything above three years of bond duration is medium-term and five years and above is long term.
2. Always keep a cash position as a part of your portfolio
Many retail, as well as HNI investors, have a tendency to fully invest in equity or equity-oriented investments. This results in a situation wherein when the market falls, they don’t have the financial capacity to buy.
Many professional investors have 10-20 per cent of the portfolio in cash positions which help them to maintain their equanimity and build on an opportunity.
A simple thumb rule is to buy what you will buy on a fall. The market gives an opportunity to buy at a certain price point once every year.
3. Look at new sources of information
It is important to cultivate new sources of information. It could be reading newspapers, magazines, going to a seminar on specific topics. This helps to stay well informed and be ahead of the curve.
Generally, if one is entering when the news is out it may not be a good time to invest immediately as early-stage investors have already booked their gains.
Incidentally, the retail investor only gets in when the news is out, which reduces the probability to succeed.
4. Maintain a calm state of mind
Markets always give an opportunity. However, many of these opportunities are disguised as market falls. Many of us don’t actually go out and buy during such times for the fear of losing more money.
Are there strategies which help with the situation?
One can use systematic transfer plans which are a transfer from a liquid fund to an equity or quasi-equity investment. A quasi-equity investment can be a balanced fund, an equity savings fund or an arbitrage fund.
Also, if one entering a passive income requirement stage of life one can use systematic withdrawal plans. These help to take care of the basic situation at hand and build a portfolio which is future fit by reinvesting some part of the proceeds.
5. Build for the end game
The endgame is nothing but how one views the world and one’s place in it. For most of us, it could be a situation wherein we are ready financially for a post-retirement life or one has exited one’s business venture favourably and in the right time cycle.
One of the ways for most of us to build for the end game is transferring assets to conservative asset classes which are relatively less volatile and risky. This needs to be done in a staggered manner as one may still be looking at building for the future contingencies.
When a new investor or even an experienced investor starts thinking portfolio is great, it is time to identify what aspect of it needs to be derisked. In the current scenario, it is the right time to identify opportunities from a medium-long term point of view.
After all, without removing the weeds one cannot have a beautiful garden.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.