By RUCHIT MEHTA
All too often investing gets a romanticised image. It is an activity in which millions can be made or lost; in an environment which can set the heart racing.
There is a constant flicker of prices on the screen and a non-stop commentary in the media. And markets can provide gratification in weeks, if not in days and minutes. It is exhilarating and can drive up the adrenaline.
And this draws many to dabble into the financial markets. It’s almost unavoidable. But very few, even by those in the profession, generate wealth consistently in this romanticised, exciting world.
More often than not individuals lose money. Either the timing was wrong or the wrong security was purchased. This can lead to disenchantment in investing itself.
Losses experienced tends to lead to avoid investing into assets like equities, a behaviour termed loss aversion. Or results in a ‘flight to safety’, the investor moves most of her wealth into the safest assets (bank deposits or incorrigibly assets like gold).
Safe assets can provide security, but this cannot create wealth or catch up to rising expenses/prices. This is an ineffective way to create wealth.
But investing does not need to be exhilarating to create wealth, and it can be simple as well. The best personal investing strategy can be quite simple. All it needs is discipline, diversification and getting started early. Essentially make it boring.
And here’s how the boring way of making wealth can be:
Establish your goals:
What do you want to invest for? Retirement? Kids education? Important to know at the beginning what the investment is for.
The power of compounding works wonders over longer periods of times. Rs1 invested per month for 15 years (Rs180), when compounded at 15% annually will result in a value Rs676. If extended to 25 years (Rs300 total investment) will result in a value of Rs3284.
Treat your investment as a loan down payment. Invest every month. Make it a habit. Treat it as if the money is not there, you can’t touch it till you retire or hit a pre-specified goal.
Buy 5-10 funds. Don’t put all your eggs in a single basket. The earlier you start investing, the more risk you can take more small-cap funds), the later you start investing the lesser the risk (more large-cap funds).
Seek professional advice:
Investing is a profession. And not all of us can be proficient or naturally gifted investors. Know this and seek professional advice to start with.
Nobel prize-winning economist Paul Samuelson said it best, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”.
So go ahead, make your investment boring!