How to be a smart investor: How much to invest, how to invest and when to sell is critical ingredient

Investing without a strategy is like traveling without an itinerary. In other words, investing without a plan can expose you to the risk of either not achieving your investment objectives or losing a part of your capital or both. Considering that you may have different investment objectives, covering varying time periods, a well-defined investment plan and the strategy to implement it goes a long way in in keeping your investments on track to achieve them.  

Broadly speaking, your investment strategy should guide each of your investment in terms of how much to invest, how to invest i.e. lump sum or systematically and above all, when to sell.
Remember, your time horizon begins when you invest the money and ends when you need to take the money out. The length of time you remain invested is important because it can directly affect your risk tolerance. Longer time horizons allow you to take on greater risks in order to improve your total return potential. Some of the risks can be reduced by investing across different market environments.

As is evident, you are likely to face various challenges during your defined time horizon, and the level of investment success you can achieve will depend upon how you tackle these challenges.  

One of the major challenges is handling volatility in the markets. The surprising part is that though ups and downs are a common part of investing, not many of us have the temperament and the skill to handle them. The truth, however, is that for a serious long-term investor, volatility should not be a major concern. For example, if you invest in equity as a part of your retirement planning, you should not bother about the movements in the stock prices on a day-to-day basis.  

The focus should be on the quality of the portfolio and the right mix of asset classes in it.

Time diversification, that is, remaining invested over different market cycles is another important aspect of investing. It helps in mitigating the risks that may emanate from any haphazard investment decision of either exiting from equities or reducing exposure in them at a bad time in the market cycle.

We often forget that falling markets often present great buying opportunities for a long-term investor. Therefore, continuing to invest in a disciplined manner for long-term goals can be quite rewarding.  

Of course, investing short term money into equity or equity funds in the hope of making a quick buck can expose you to undue risks. Therefore, if you feel compelled to make a shift to your asset mix during turbulent markets, remember the reasons why began investing in the first place.  

Keeping your focus on long-term goals will allow you to maintain your asset allocation that is ideal for your needs.

(By Hemant Rustagi, CEO, Wiseinvest Pvt. Ltd.)

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