Here are 5 Surprising Investing Truths:
Investor nowadays is much more aware than his ancestors. The sources of investment information have proliferated over the years. So much so, that you can indulge in investing any time and anywhere. You can categorise yourself as risk-averse or risk-seeker. You can understand your financial behaviour and moderate accordingly.
The range of investment products available today is bizarre. Whether it’s a high risk-high return haven like equities or low risk-low return haven like debt funds; you name it, you have it! You may frame any financial goal and work towards it. The degree of autonomy and flexibility which you enjoy today was not available a decade ago.
The capital markets are becoming deeper and deeper with each day seeing an IPO or an NFO. You may analyse these options and invest according to your financial goals. Even the regulators are working towards protecting investor interests; so that you continue your investing journey fearlessly.
You have come to know what the difference between investment and insurance is, and it can be fatal to intermingle both. You too are making your risk cover decisions wisely.
In addition to the information available online, investment platforms have come up with the robo-advisors. These are virtual advisors who are powered by artificial intelligence to solve your investing queries. The manner of customised query resolution is improving with each passing day.
You may find a plethora of news channels hitting your TV sets every day. There are dedicated financial news channel buzzing with investment advises round the clock. And then these showcase exclusive market news and specialised financial literacy slots for the retail investors.
You may even call one of these financial experts and get your doubts solved in real time.
The ease of investing is growing day-by-day. With SIPs in place, for instance, and lower transaction costs, investing has become a child’s play. Each investing platform needs a share in your wallet. And none of these wants to give you enough time to pause and ponder about the moves.
You are constantly bombarded with buying/selling investment advisory. And you are enjoying riding this market wave. You want to cash-in on every single opportunity. You want to make as much money as possible. You want to become rich; the sooner, the better.
But are you treading the right path?
Are you making sound investment decisions?
Do you see the light at the end of the tunnel?
Instead of blindly following the beaten path, just pause for a while. Introspect whether you are doing the right thing or not! Is the advice that is being slung at you useful?
Check out these 5 surprising truths about investing.
Low transaction costs
There used to be an era of high transaction costs. But regulatory sanctions and competition have forced the transaction costs to decline. The brokerage that one pays for intraday trading has come down to as low as Rs 20. In the case of long-term investing, it’s become negligible.
So, is it benefitting the investors anyhow?
In reality, such a decline has done more harm than good. You may see it as one of the worst things that could have happened to investors. Investors have started trading blindly, without giving much ado. The frequency of trading has risen terrifically. Now they don’t think before they act which can certainly backfire in future.
Such an act is instigating speculative tendencies in an investor. It is anti-thetic to long-term investing and wealth accumulation thereby.
Also read: Financial planning for the self-employed
Believe it or not!
You can’t stop yourself from getting swayed by the market news and updates.
Three decades ago, you had an hour of daily market updates. Today there are more than 18 hours of it. Surprisingly, instead of volume of news, only the amount of nonsense has changed. And most of it is not only useless but can be detrimental to your financial health.
You can’t only trust an advisor who appears more than twice a week on the most popular news channel. He’s there because he’s paid for it. He has to criticise a few and appreciate the rest. You never know if he’s got his personal interests attached to it.
Moreover, you are not the only one who’s got the insider tips. Millions of investors who are glued to the TV sets like you are receiving the same update. And they will also possibly make the same move.
Acting on the information from a single source can’t be as promising as you think. Instead, you need to gather information from a number of independent sources. Conduct your research and analysis before making an investment decision.
Moreover, while scanning an information source, you need to employ filters. Take only what’s relevant and leave the rest. Try to assimilate only the essence of relevant information rather than getting lost in unnecessary details.
Bulls and Bears
Markets ups and downs are imminent. Nobody can stop these. There’s at least one pull back every year and a massive pull back once in every 10 years. In the past 5 decades, the world has experienced 7 to 10 recessions.
So, the main point is that bulls and bears are the inherent features of the capital markets. You shouldn’t feel overwhelmed during bull runs. Similarly, you shouldn’t feel dejected during bear runs.
Don’t blame the market for your losses. Instead, try to understand this simple fact. You got to time the market. Your returns are directly related to your time of entry and exit. If you enter just before an impending bear run and exit on the start of a bull run; you are bound to lose.
It is essential to get your hands on learning the charts. Charts indicate the market trends and the direction in which it’s heading towards.
Act rationally and enter and exit at the opportune time.
A wise man rightly said, “if it’s too good to be true then it probably isn’t”.
The same thing holds good for investments as well.
Take the case of a ULIP or any other attractive investment scheme offering incredible returns. The investment offer is presented as the best opportunity you can’t afford to miss. It will not outline explicitly what’s the product composition or what are the havens wherein your money will be allocated. It might be promoted as some complex, out of the box investment idea. Moreover, the advertisement may never hint upon any inherent risks.
Especially, in the case of IPOs, you don’t know what nonsense is buried underneath. After all, it’s your hard-earned money; you can’t risk it on a newbie whose potential is unexplored.
The thumb rule is: unless you have understood the offer inside-out, don’t invest in it. Otherwise be prepared to be slaughtered.
You need to know that in India there are only 4 asset classes, i.e. equity, debt, real estate and gold. Each asset class has given specific historical returns which are readily available online. Each asset class has certain limitations as regards return potential.
While taking investment decisions, look into the product composition and rate of return. Have an expected return in mind and make a comparison. Arrive at a realistic risk-return picture before investing.
As a human being, you are bound to get irrational at times. In spite of possessing so much wisdom and being well-versed with the investment Gyan, circumstances may cause you to falter.
You may fall prey to the bandwagon effect during the market exuberance. It’s like following the herd mentality. Whatever the majority of investors are buying, you may desire to buy that.
So, whenever you notice traces of such tendencies within you, immediately stop. Pause and analyse your actions.
Ask yourself: Is it worth buying the stock?
Am I behaving in a goal-oriented manner?
Is the company promising enough to warrant the investment?
Only then go for such an investment decision. Investment is more about behaving rationally than finance.