How to become a successful investor?
Many times we come across fancy investment ideas in TV shows / movies or advertisements where the protagonist earns massive returns from stock market. However, this is not how things work in reality. One needs to have discipline and should adhere by some basic rules for successful investing in real life.
3 Rules for Successful Investing
1. Be a Long Term Investor
- The definition of ‘Long Term’ is fickle as a feather, quite subjective and varies from individual to individual. But when retail investors indulge in part time trading or something similar on the side along with their job or business, it could take a turn for the worse and prove detrimental for your portfolio.
- From the point of equities , long term investing is all about proper financial planning to identify your future goals with a minimum horizon of 5 years.
- Investing in debt is akin to investing in a savings instrument where the possibility of extra or alpha returns being generated is relatively low.
2. Regular Investing
- Time and again SIPs are called out and lambasted on account of their poor performance or under performance in comparison to peers in the short term. These same SIPs when continued for a longer period like 5, 7 or 10 years have outperformed and exceeded expectations spectacularly.
- The journey of regular investing is supposed to be a boring one, which in turn makes it effective. When excitement comes into play, it means you’re on the wrong path towards deleterious uncharted territories.
- Often, people tend to focus more on returns and completely disregard the accumulation of wealth in an SIP. Whereas regular disciplined investing is all about the accumulation for wealth and returns are a by-product.
- SIP as an investment technique or product has amassed a great deal of popularity because it requires very less human intelligence. A major aspect of it – automated to transpire in a regular and disciplined manner.
- Incorporating this thought process early on is of utmost significance, otherwise an investor becomes habituated to constantly switch SIPs between funds in short periods of time , thereby deviating from the entire process of peaceful systematic investing.
3. Follow Asset Allocation
- “When should I book profits?” is a rife question and an issue of worry among retail investors. A simple remedy to tackle this problem is to follow Asset Allocation. Review and re-balance your portfolio half yearly and yearly. Conduct re-balancing among your assets like equity, debt, gold, etc.
- 95% of portfolio success depends on your asset allocation and your ability to follow that allocation. Concentrate on your overall net worth instead of individual investments in stocks or mutual funds. Always look at the bigger picture.
- Don’t miss the forest for the trees.
- Don’t be penny wise and pound foolish.