Diwali is just over and all excitement around it is about to finish. Ditto is true for investment tips, Diwali day special, Muhurat trading, stock tips etc till we wait for the New Year to kick in and the cycle goes on.
While we all are building wealth as per our given capacities and investment appetite, one thing is very important in this wealth journey i.e. Perseverance.
Additionally, we should avoid procrastination when it comes to investments. But the question is are we equipped to take a decision on our own? Maybe for finance specialists like us but even the best of Drs don’t take their own medicine. Hence, the best finance professionals should have advisors.
Here comes the need for the financial strategist or guide or advisor – whatever you name them but you need them. They are not only for helping you with investment decisions, that’s only a part of it; rather, they are more for holding your emotions, dealing with market cycles and helping in picking the right fund.
The AMFI research says that DIY investors are more prone to churn the portfolio relative to investors who are guided by a financial strategist.
Over the next few paragraphs, I would help you to demonstrate that a financial guide/advisor is a necessity rather than a choice.
Divergence in equity funds
There is a wide divergence in the performance of equity funds within categories. We divided the funds within a category basis three-year rolling performance over 10 years and divided them into quartiles i.e. Q1 to Q4.
While the top funds have been able to convincingly beat the bottom ones, there was also a significant difference between quartiles. On average, the difference between Q1 and Q4 funds has been around 7% p.a. across the market cap segments. The same is true for other categories too.
Past performance has not helped
Picking the best funds in hindsight has not helped. We picked funds basis one-year and three-year historical performance and over many years, it demonstrates that there is a drastic shift in fund quartiles and that may not work every time.
Over a one-year or three-year historic basis, it has not helped in sticking to the top quartile funds. Out of total funds in Q1, only 30-50% remained in Q1 and Q2 over the next three years.
Similarly, poor performance funds in Q3 and Q4 have turned the corner across one-year and three-year historical performances and shifted to Q1 and Q2.
So what is the way out?
Stick to your own investment philosophy
Segregate your investments into a mix of growth/quality MFs, sector rotation MFs or economy-facing/dominant MFs. Depending upon the market scenario, you can change the allocation amongst these three categories – so, sometimes you would end up having higher largecap allocation or towards higher mid and smallcaps – so, be dynamic in nature.
Keep 70-80% into a strategic portfolio and remain in a tactical portfolio to take advantage of any opportunities available in between.
Advice for new investors
Never borrow any investment advice from any relatives or friends or social influencers. Identify your own risk profile, invest in a combination of equity and debt basis risk profile output and stick it till your investment horizon or till your goals are achieved but don’t forget to review the portfolio every six months or a year.
For all the above-mentioned factors, you need a doctor, a doctor who can guide you in your wealth creation, help you manage market cycles and hold your nerves during market upturns.
You need a financial advisor!
(The author of this article is the head of investment products and advisory, Anand Rathi Shares & Stock Brokers)
Disclaimer: The views and recommendations given in this article are those of the author. These do not represent the views of MintGenie.