The hope of seeing green amidst a sea of red in stock prices has led many investors to pile up on stocks with considerable growth potential. It is natural to want to participate in equities considering how inflation is eating into our savings and how the continued devaluation of money prompted many investors to relook at their retirement planning strategies.
The prices of many stocks have come down to their pre-2020 levels; such low valuations mean that it is now more difficult to sift the wheat from the chaff. Those new to investing in 2023 know the constant market volatility since 2020.
The first set of global market corrections in 2020 due to the pandemic followed by a favourable market movement in 2021. Then, 2022 came wherein we all witnessed sudden geopolitical tensions and a tectonic shift in power between countries as interests and emotions collided resulting in border clashes and then a full-fledged war, albeit for a limited period.
This year, as we all await the announcements in the forthcoming budget session due to start on February 01, let’s revisit some essential investment mantras that will keep you in good stead.
Strategize your investments with a plan in mind
Anticipating the direction in which the market would move is becoming increasingly difficult. The markets will reflect the fast-changing, world-shaking events of this era, thus, making them more volatile and unpredictable. Remember that the markets mirror the times in which we live, which means that you must not rush to invest in the market with a fixation of being certain about your investments.
Invest with a goal in mind; do not forego your idea of parking your earnings in mutual funds through systematic investment plans (SIPs). Know why you are investing in a particular theme or scheme and ensure to give your investments enough time to show the desired results.
Ignore get-rich-quick schemes
Remember the clamour for investing in cryptocurrencies in 2022? So many new investors rushed to park their earnings in cryptos hoping to make some good money out of them. And then, scams surrounding these digital currencies surfaced causing many to lose their hard-earned money. The myth of cryptocurrency management and payment service being safe and simple burst as the duplicity of these scams appeared all over the web.
Amidst all volatility, a disciplined and long-term strategy would help you wade through this volatile environment. Many opportunities will emerge in the coming years, and long-term investors should proceed with caution.
Be patient with your investments
Discipline, humility and patience are essential to achieving success in investing. Most importantly, do not panic in a volatile market. Don't sacrifice long-term growth for a quick win. Stay focused on your long-term financial goals. Do not let immediate success or failure deter you from seeking financial independence in the long run. Decide your investments based on logic and hard data, not on media hype or industry jargon. If you have invested wisely, there is no need to be concerned.
Go slow while investing
Slow is always better than fast for long-term investors. Short-term market entry and exit are detrimental to your financial health. The most effective way to invest is to make consistent and systematic investments over time. Do not take your earnings and profits for granted. Keep your investments in order to meet your long-term goals.
Do not chase performance
How often have you felt induced to invest in a particular stock or fund due to previous good returns? Though past performance is no guarantee of future results, novice investors often feel compelled to decide their investments based on recent price movements. Remember not to invest in something just because it looks appealing or it is in vogue.
Say “No” to emotional investing
Your emotions can be your biggest enemy if you do not keep them in check. Do not let emotions influence your investment decisions. When making an investment decision, you must be aware of your emotional temperature. Calm investors have fared far better than highly emotional ones. When investing, staying focused on your goals and being aware of the risks is best.
Make the best use of your savings
Do not rejoice about the excess amount set aside in your savings account. Remember that money is subject to constant devaluation, which means that the money saved now in your savings account will definitely not be enough to take care of your future. Also, putting your money in a savings account will not generate wealth considering the low-interest rates offered.
Instead, take out the money from your savings account and invest it somewhere it can grow, for example, stocks, mutual funds, sovereign gold bonds (SGBs), and more. Money accumulated will not grow as quickly as money spread across asset classes. To spread your risk, diversify your investments across asset classes. The sooner you start investing your savings, the better off you will be.
Diversify your investments
You do not eat the same food every day nor wear the same robes each day. Then, why invest only in one kind of stock or instrument? When choosing stocks, make sure that your holdings are not concentrated in one or two industries or companies that go through the same business cycle. When investing in mutual funds, do not rely on the performance of equity fund investments alone. Debt funds may not yield much but adapt better to volatility while ensuring you the much-needed tax benefits. Apart, consider other investment opportunities also.
Take, for example, gold investments that work as the perfect hedge against inflation while yielding returns when most other investments fail. You may consider putting some money in SGBs whose returns are exempt from tax though the yearly interest is subject to tax calculation. Silver is volatile but can be considered a long-term investment. A bit of dabbling in real estate will do you well considering the recent rise in the realty sector coupled with the benefit of rental income, thus, allowing you access to a regular income source.
Ensure margin of safety in investments
The path to achieving your investment objective is not always linear, and it frequently necessitates turning off market noise and sticking to your conviction, even if it makes you appear extremely contrarian. Things may not go as planned, no matter how well you may plan your investments. When you have a process that necessitates a high margin of safety, you can be confident that your plan will be successful and that the outcome will be favourable and rewarding.
“To each, his own” is a famous adage that holds true to investing. Unbiased of what people around you say or do, you must develop your own investing style and stick to it instead of aping what your peers do.