Despite the various reading material available in digital and print media nowadays, there really cannot be the one ideal guide for financial planning. What you invest in and how, is directly proportional to your goals in life, your willingness to take risks, your age and the corpus you have created. There is no one-fits-all solution and hence the need for financial advisory. As per a study last year, 70% of Indian investors are working with professional financial advisors vis a vis just 54% globally. It is a good sign, we say. A sign of the evolving financial investment market in India and also a sign of investors being discrete and wise with their decisions.
At Truemind Capital Services, we take pride in offering the most reliable and unbiased financial advice to our investors irrespective of how big or small their corpus is. However, below are some errors we all must always avoid in order to have a healthy portfolio-
1. Allowing market volatility to deter you
If you base your decisions on the everyday changes in the market, then that beats the benefits that mutual funds have over direct stock investments. It is in the nature of the market to be volatile; if there are highs, they shall be balanced by lows and the cycle would continue. The diversity of mutual funds protects you against the dependency on any one industry/sector and in return what it requires from us is patience. Redeeming when the markets dwindle is one of the most common and avoidable mistakes. In fact, playing contra i.e. increasing equity exposure when markets correct substantially and vice-versa is a smart strategy.
2. Keep your goals reasonable
The fact that most of the possessions are today available on debt, makes the offer very lucrative. But here’s the thing. Aiming too high too early may increase your debt-to-income (DTI) ratio considerably thereby making your day-to-day life stressful. For example, if you wish to buy a luxury car (short-term goal) at the age of 25 wherein your car loan EMI comes to Rs 25,000 per month against your income of Rs 40,000; you are precariously holding a DTI of 62.5% which is high by any standard. Hence, when setting your goals, be comfortable and reasonable.
3. Risk is a double-edged sword
More often than not, you shall find it difficult to find the right balance between aggressive and conservative investments. It is a paradox that investments with a lower risk appetite offer you returns that are relatively lower than those with higher risk appetite. Though we respect your risk appetite and we maintain that you must not choose investments that make you uncomfortable, still, it is important to take a balanced view regarding your investment objective and risk appetite. Even though you feel enterprising enough to invest in equity mutual funds, we would recommend you to strike a balance and invest a portion in conservative debt funds just to find the balance. Vice versa also holds true.
4. Have a holistic plan
While you plan for the long-term goals like retirement, keep an eye for tax saving, contingency funds, and insurance; all of which are critical goals as well. Think outside the traditional ways, we suggest. When saving for tax, choose ELSS (equity linked savings schemes) for better returns and lower lock-in periods. Similarly, when planning for contingency funds, choose liquid funds over a savings account and choose term insurance plans to keep yourself covered.
5. Inflation cannot be ignored
Suppose you have an investment that gives you an average return of 10% over a period of 5 years. What investors tend to forget is that inflation here is negatively compounding your earnings and thus average inflation of 6%, shall leave your real returns (inflation adjusted) to be 4%. All your investment decisions must account for inflation when aligning goals with returns.
At Truemind Capital Services, we take your investment matters very seriously and hence we spend a great deal of time finding you the best-suited portfolio for your goals. You may get in touch with us for an introductory discussion.