Strategize Your Investment Portfolio than Planning for Returns

Sep 28, 2018 | 8 months ago | Read Time: 3 minutes | By iKnowledge Team

Strategize Your Investment Portfolio than Planning for Returns - Aegon Life

When you aim to generate returns, you lose out on better avenues.

What is it that makes investors run after returns? It is as simple as the need to make as much money as they can. But is it the most efficient way to achieve one’s financial goals? Most investors pour all their effort into generating as much returns out of the market as they can when the market is on a high. This however, is highly counterproductive.

Let’s look at why:

Chasing after returns is the only way that people know to achieve their financial goals in a quick manner. You may even wonder if that isn’t the main reason for investing in the first place. While your heart is in the right place, your approach isn’t though. The real purpose we invest is not only to generate returns but also to predictably ensure that we achieve our financial goals and objectives with ease.

Why not chase returns?

Let’s take Amol for example, a mid-level corporate executive. His knowledge of personal finances is limited to the business news channels he follows, finance dailies that he reads and the advice of his loved ones. Like most investors, he invests his finances based on the market trends that he has observed from his sources. His finances are invested based on the up-trend of the market such as equities during 2005-07, real-estate in 2006 and gold around 2010-11. He invested his money at every opportunity he chanced at.

The only thing that his investing activities achieved was moving money from one asset to another. 2006 was the year of real-estate where he invested in property, while 2006-07 saw equity investments. As the market crashed, he sold all equity holdings by the start of 2009 and then his home by 2010. While property did get him returns, equities turned out to be an expensive disappointment. Fixed deposits came next, followed by the gold rush of 2010 where he invested a third of his FD. Amol ended up buying gold for Rs. 22,000 per 10gm, which he sold at Rs. 24,000 in 2015 as gold appreciated at 2.2% per annum, while reinvesting in equities just the year before. He now regrets his decision with gold as it now soars at Rs. 28,000 approx.

Is timing really everything?

We have all been an Amol at some point of our lives. We want to invest when the timing is just right. But perfect timing itself is as elusive as Santa Claus in Antarctica. Naturally, most investors get the timing wrong and the ones who do have most probably shot in the dark. The ones who get it wrong only realize it too late as the asset they just sold is now escalating in price. Most wait in the sidelines, only investing a little before the asset peaks. They enter high and experience the dizzying fall only to exit, disappointed and blaming market volatility.

What to do?

Seasoned investors know this and while they do rely on market predictions, their investment decisions are backed by a lot of research on their own. A thumb-rule that they follow suggests investing in an asset when its least fancied and hold on to it as it begins to pick up pace. That’s how you make money. By regularly switching between assets not only do you incur losses but also, hidden costs and taxes.

Investment returns are important sure, and when invested properly, you stand to make good on them. All it takes is a modest 9 percent of portfolio returns to achieve and accomplish all financial goals. So, investment returns should not be your biggest criteria to focus on. Disciplined investment, proper asset allocation, periodic reviews, thorough research and strategy along with professional financial mentorship by advisors (for fledgling investors) are the keys to ensure that you live well funded.

IA/Sep 2018/4425

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