IF YOU FAIL TO PLAN, YOU ARE
PLANNING TO FAIL
1. Not setting financial
goals
· Every investor
has different long-term goals based on his/her current status, income, risk
profile and investment horizon.
· Laying out one’s
long-term financial goals can be a simple exercise, yet few investors actually
do it.
· Those who
consciously plan out their goals are usually more empowered, create more
suitable portfolios and increase the odds of actually achieving their long-term
goals.
2. Short-term mindset
· Meeting long-term
goals involves implementing a long-term strategy.
· Investors who
want to make a quick fortune take high risks, trade too frequently, invest
large amounts in short-term fads and face the prospect of losing their capital
over a period of time.
· Patient investors
have greater visibility over future portfolio movements as they prefer stable
returns over a longer period, they invest in long-term themes and in well-researched
ideas.
3. Pre-tax myopia
· Investors often
look at gross return, not calculating how much they really get to keep after
taxes.
· Investments have
different tax rates and one should always compare “post-tax” returns.
4. Inadequate understanding of risks
· Credit, interest
rate and concentration risks are inherent in markets and all investments carry
them in different proportions.
· Common
precautions such as diversification, low modified duration, investing in high
rated companies, etc, are the tools investors should use to protect their
capital.
5. Inadequate product knowledge
· There are
innumerable instances of investors losing money in a product they thought was
capital-protected or of getting margin calls when they thought there was
adequate margin cover.
· Investors who
question, query and understand the products they invest into often turn out to
be better investors since they understand how these investments will behave in
different situations.
6. 'Fill it, shut it, forget it' mindset
· Investors often
don’t take the time to review their portfolios.
· Markets are
increasingly dynamic and regular review of a portfolio can maintain its
efficacy.
· Interest rates,
GDP growth, inflation, exchange rates, crude prices — these are some of the
many variables affecting our investments.
· Investors should
review their portfolios once a quarter and align the same to market movements,
thus reducing chances of being caught by surprise after two-three years.
· Investors today
are faced with a complex market and ever-more complex instruments to invest
into.
· However, the
ground rules for making investments haven’t changed much:
· Be informed, ask
questions, have a long-term mindset and check for taxes! Investors who stick to
common sense ground rules should be well on their way to achieve their
long-term goals.