1. Every investor has different long-term goals based on his/her current status, income, risk profile and investment horizon.
2. A conscious formulation of one's financial plan will create more suitable portfolios and increase the probability of achieving these goals through a long-term strategy.
3. It will also provide greater visibility in portfolio movements, investing in long-term themes and in well-researched ideas.
4. To avoid losing money through inadequate knowledge, it is necessary to question, query and understand products, especially their behaviour in different situations.
5. Periodical portfolio review (not timing or churning) is essential, as markets are increasingly dynamic with many variables like interest rates, GDP growth, inflation, exchange rates, crude prices, etc. affecting investments, to avoid being trapped when target funds are really needed.
6. Also, the following pitfalls have to be carefully avoided while formulating and implementing a long-term financial plan:-
a) Having pre-tax myopia and not comparing post-tax returns,
b) Inadequate understanding of credit interest rate and concentration risks,
c) Inadequate product knowledge towards their behaviour in various circumstances,
d) "Fill it, shut it, forget it" mindset with no periodic reviews,
e) Incorrect cost calculation without factoring in actual inflation of each long-term goal,
f) Unsuitable investment option for meeting time-bound goals,
g) Not investing in goals as per priority, or ignoring many goals,
h) Unrealistic assumption of returns from invested products.
7. Notwithstanding complexity of the market, a long-term investor can easily formulate and implement a simple financial plan by just sticking to common sense ground rules, which have thankfully not changed.
8. In actuality, one should try to maintain a debt-equity investment ratio as per age, working status and overall risk appetite, and SIPs should be reviewed if there's a need to rebalance investment to the originally decided debt-equity ratio, by suitable redemption and reallocation of fund corpus.
9. During this rebalancing, you can weed out chronically bad funds too, by stopping their SIPs and starting new SIPs in better funds, but within the same debt-equity ratio, and whenever goal amounts reach, you should fulfil them immediately.
10. If you fear for losses at any time, you should shift to fixed investment products immediately, and review your risk profile parameters again.
2. A conscious formulation of one's financial plan will create more suitable portfolios and increase the probability of achieving these goals through a long-term strategy.
3. It will also provide greater visibility in portfolio movements, investing in long-term themes and in well-researched ideas.
4. To avoid losing money through inadequate knowledge, it is necessary to question, query and understand products, especially their behaviour in different situations.
5. Periodical portfolio review (not timing or churning) is essential, as markets are increasingly dynamic with many variables like interest rates, GDP growth, inflation, exchange rates, crude prices, etc. affecting investments, to avoid being trapped when target funds are really needed.
6. Also, the following pitfalls have to be carefully avoided while formulating and implementing a long-term financial plan:-
a) Having pre-tax myopia and not comparing post-tax returns,
b) Inadequate understanding of credit interest rate and concentration risks,
c) Inadequate product knowledge towards their behaviour in various circumstances,
d) "Fill it, shut it, forget it" mindset with no periodic reviews,
e) Incorrect cost calculation without factoring in actual inflation of each long-term goal,
f) Unsuitable investment option for meeting time-bound goals,
g) Not investing in goals as per priority, or ignoring many goals,
h) Unrealistic assumption of returns from invested products.
7. Notwithstanding complexity of the market, a long-term investor can easily formulate and implement a simple financial plan by just sticking to common sense ground rules, which have thankfully not changed.
8. In actuality, one should try to maintain a debt-equity investment ratio as per age, working status and overall risk appetite, and SIPs should be reviewed if there's a need to rebalance investment to the originally decided debt-equity ratio, by suitable redemption and reallocation of fund corpus.
9. During this rebalancing, you can weed out chronically bad funds too, by stopping their SIPs and starting new SIPs in better funds, but within the same debt-equity ratio, and whenever goal amounts reach, you should fulfil them immediately.
10. If you fear for losses at any time, you should shift to fixed investment products immediately, and review your risk profile parameters again.