Remember what it means when someone tells you that you do not have to be different to be successful? You just have to do things differently. Not all riches are inherited; some can be earned through constant savings and high-return investments.
While there are myriad investment options with each designed to suit individual financial goals, the key to building a sizeable corpus is to remain consistent with your investments. This you can do by investing regularly through systematic investment plans (SIPs) in many mutual fund schemes that have outperformed the market in the past.
However, many mutual fund investors complain how the value of their fund falls in adverse market conditions despite the same having shown a bull run when the market is high. While this is a common factor underlining most investment options, the trick is to identify instruments that qualify as quality investments.
Understanding quality investing
The idea that underscores all quality investments is performance consistency across different market conditions. Also, the idea behind chasing such investments and then staying invested in them for long periods is to avail continued returns even during different investment cycles.
Quality investing is a technique wherein you identify some evergreen investments or stocks based on their fundamentals to identify companies with great potential. Many investors make the mistake of just reading the valuation of stock while investing in it. Most of them forget to look at other factors including management quality, cash flow consistency, debt to equity ratio, return on capital earned year-on-year, and more.
Of course, some external factors can have a palpable effect on a company or stock performance. However, the trick is to stick to companies that show persistence. Alternatively, you may park your earnings in mutual funds that invest in such high-performing stocks or invest in blue-chip or large-cap companies.
A balanced approach
Quality investing is also adopting a balanced approach. Putting all money in equity funds can spell trouble, especially, when the market is on the downside. This explains the need to include some balanced or hybrid funds in your portfolio. The advantage of having them is that your capital and earnings are transferred to the debt component in the fund to prevent their erosion during the bear phase. However, if you are too risk-averse and wish to keep your capital protected sans the risk, you can also invest in debt fund instruments that promise moderately good returns sans the fear of losing out on your money.
Consistency is the key
Irrespective of how and where you invest, you must take care to be persistent with your investments. Volatility is the underlying element of most market-linked investments. However, behaviour-linked investment can help to overcome the tide in most investment decisions.
Consistency in investments will take you a long way in creating the much-desired corpus. Patience plays a key role here as it keeps you hooked permanently to your habit of investing. More than conviction in your stocks and other investment options, you can only create a huge corpus with patience and consistency.
Savings is the first step to wealth creation. Investing in the right instruments comes next. Holding on to your investments for a prolonged tenure is the most essential practice that you must not forget. You need money to create money. So, investing early in life matters to experience a huge difference in the long run.