Five ways to become a better investor

Managing money and building an investment portfolio can be pretty exasperating for many investors especially who are new to the investment scene. But if they keep calm and control their emotions they can create a good financial portfolio. Becoming a better investor is a never-ending process for both new and experienced investor. Learning and reading about new strategies also helps. Following are the five key elements to be a better investor.

n Invest for long term: It is imperative to have a long-term plan as it has been proved that investments held for longer periods tend to reveal lower volatility than those held for shorter periods. Staying invested in the market over the long term has historically paid off.

Over the long term, share prices tend to reflect the underlying reality of companies and the returns they deliver to shareholders. Also you should develop a habit of investing regularly. For young investors and also experienced investors should take the route of systematic investment planning. In this scenario, you invest every month and accumulate units at regular intervals, it hardly matters whether market is up or down just be patient and invest regularly for long term as it has a benefit of rupee cost averaging and compounding. The longer an equity investment has been held, the less likely it will lose money, and the more likely to make money.

n Have a realistic approach: It is important to be realistic when it comes to your return expectations. You need to question yourself as to how much is your risk-taking capacity. If you are an aggressive investor, then be prepared to get wonderful returns and also be prepared for losses because higher returns come with higher risk.

So, you need to be clear about risk reward profile of an investment. There will be times when you might earn substantial returns of 30%-40% during bull run but it should not mean that you expect the same kind of returns from the stock market. Staying updated about the changes in the financial markets or the changes in government policies will help in setting realistic goals.

n Diversify the portfolio: It has been proved time and again to benefit the investors who are concerned about the risk and reward. When the portfolio is well diversified across all asset classes which means some investments may go up and some may struggle, this diversification can balance the risk of the portfolio and provide a better productivity and improve the overall effectiveness and efficiency of the portfolio.

Predicting the market is futile and the only safeguard against the market volatility is diversification. Diversification can be done by investing in multiple asset classes and securities with a positive expected return and low correlations. This means that the values tend to move in opposite directions relative to one another when markets are volatile.

n Follow a disciplined routine: Becoming a better investor takes commitment to learn from the past mistakes, keeping patience, also following a specific routine and plan. When times are tough, courage to stick to the plan makes sense. So, developing courage is of utmost importance. Following a routine of re-balancing is also critical, it means to adjust your holdings to maintain your targeted asset allocation.

Normally re-balancing is done when there is a change in the market dynamics or a change in the life style goals or any important change like receiving inheritance etc. Apart from this, asset allocation strategy should also be followed which means as to how much is in equities (large, mid and small caps), fixed income, bonds, cash and real estate.

Also, it is important to monitor the portfolio and keep a track of happenings all around the world, as any event across the globe can have an impact on the financial market. If you can’t review or monitor the portfolio due to time constraints or some other reason it is highly advisable to connect with a good financial adviser who can help you in this regard.

n Keep a check on emotions: When volatility increases, investing can become quite emotional which can lead to bad decisions and it can negatively impact the financial future of any investor. Markets can be volatile over short or long term due to any sensational news be it national or international and it will force you to make decision and how you react to the volatility is important. In order to keep calm it is required to ask for help. So be practical and don’t let emotions play mind games with you. Think rationally and stick to long-term goals.

An informed and successful investor should have at least some of the aforementioned attributes. Investors should also realise that there will be times when they make bad decisions but learning from those mistakes and employing good strategies will definitely make them a better investor.

(The writer is the managing partner of Aaneev Wealth)