Answering such a dynamic question requires a deeper understanding of the person asking the question and their end goals.
Answering such a dynamic question requires a deeper understanding of the person asking the question and their end goals. No two individuals are the same, so why should there be one ultimate strategy for investors to build wealth. Moreover, financial strategies and goals will constantly evolve with time as each individual's responsibilities continuously change.
People are far more complex and differentiated than the loosely held labels we frame them in. An ‘Investor’ can represent a 21-year-old who has just invested a few thousand rupees of his summer earnings in crypto, hoping to buy some new sneakers. It can also represent an Engagement Manager at McKinsey who has invested in technology ETFs to plan for her daughter’s college fund. So the ultimate investment strategy for either player might be considerably different.
Although different investors have different game plans, they are all playing to win.
Managing your investment is like building the right/winning team. One needs the right combination of openers, middle order, finishers of course one cannot miss-out on the wicket takers. It’s not just about the right talent but when is the right time to play/use them.
Think of cricket, each player in the victorious World Cup Indian cricket team played a certain way and had a defined role in the team. The openers Sachin and Sehwag started the game by setting the pace and securing those early runs. Harbajan and Zaheer were essential in taking those crucial wickets in times of dire need. Yuvi and Dhoni were necessary to hammer those sixes and fours and bring the game home.
An investment portfolio is like the Indian cricket team. There are many different instruments across asset classes- Mutual funds, ETFs, bonds, gold, cash, etc., and each one has a specific role to play. Depending on investor preference, some portfolios are riskier than others. Ideally, one shouldn’t have a lump sum of one product unless you are a seasoned expert in that vertical (and even then, that's usually not the best plan). One must have an optimal asset allocation across different instruments based on their own specific goals and risk profiles.
So here are a few key points you should keep in mind while designing your financial game plan -
1) Define your long-term financial goals and align them with your career progression frequently.
Got a big bonus? Review your portfolio and invest.
Got that job you were eyeing? Repeat the step above.
2) Understand your investment needs and manage your savings accordingly.
Adjust your lifestyle, reduce avoidable costs and reap the benefits of compounding returns.
3) Identify your risk profile basis your goals and manage your asset allocation accordingly.
Do this systematically, since your risk appetite will depend on what goal it is tied to.
For example, if you’re saving up for a luxury car you might be able to afford a little higher risk. But if you’re saving up for your kid’s education, you should be more conservative with this financial goal.
4) Review your investment strategy in downturns and be proactive on buying dips (or better still, automate it and set up SIPs).
Dips in the market happen and as difficult as it sounds, don’t panic sell. You’re in for the long run.
For example, MS Dhoni promoted himself up the order as he would be able to tackle spinner like Muralitharan better than at the crucial point when both Sachin and Sehwag were back in the pavilion.
Everyone’s goals, risk appetite, and behaviour will be starkly different from one another, which should reflect in their portfolios. Furthermore, considering factors such as income, liquidity requirements, and family size yield, it is important that a person’s investment strategy evolves with time.
Be conscientious about where and how you deploy your hard-earned money. There’s no one-size-fits-all solution. Instead, treat it like it’s cricket. Choose the best players for your team and make sure you have a good balance of batsmen and bowlers.
The author, Sahil Contractor, is co-founder at Dezerv. The views expressed are personal
First Published: IST