However seasoned you may be, there comes a time when the investment nervousness gets a hang of you. this is not an indication that you are doing something wrong but only a behavioral aspect of the investor who gets nervous while dealing with money. Here are 6 lessons for every investor who gets a little nervous every time they invest;
Do not fall prey to market-cap bias
Although there is nothing like a perfect market capitalization mix but it is always advisable that you keep your portfolio inclined towards multi-cap funds and leave the ratio distribution to the fund manager who knows best about the market movements and corrections.
On a broader note, your today’s mid-cap fund may be converted to large caps but there is no certainty regarding the small-cap funds. those are the most volatile and require regular and consistent timing of the market.
Keep your SIP going during all times
Unless it is an emergency and you need liquid cash, do not terminate your SIPs even if the market shows a bearish trend. The concept of SIP was invented so as to allows investors to stay invested even when the markets are not so high and they do not have lump sum money to invest.
Most of the investors aim at saving money for major life events like Child Education, home, Child marriage, etc which are good for a long-term investment. Most of the investors do not understand the fact that the benefits of SIP are truly realized when the markets are not so high and will get corrected in some time. This is exactly how the concept of Rupee Cost Averaging works.
Understand it like this, say you invest Rs. 5000 and get 10 units for the money. Now, the market falls and the same Rs. 5000 which were worth 10 units can now buy you 15 units. Isn’t this an achievement too?
SIPs reflect exponential returns after at least 10 years
This may sound too much right now but this is the reality. You can take any mutual fund and compare the percentage of annual returns generated by it in 2 segments: first 5 years and later 5 years.
The first 5 years are moderate and mediocre whereas once the fund enters its 6th year and further, it starts reflecting booming annual returns. The CAGR of the funds lies between 14-15% over a period of 10 to 15 years.
Be aware of the Greed-Fear Syndrome
The Greed-Fear Syndrome is one of the biggest hypocritic element in investing behavior. There is nothing like an aggressive or conservative investor. The ultimate goal remains the same, wealth creation. When the markets are falling, the same investor becomes conservative catering to fear; when the markets are roaring, the same investor becomes aggressive catering to greed.
Be vigilant and consistent while you invest your money and do asset allocation.
Do not hop between assets
Attempting to correct the portfolio as the market corrects, do not unknowingly hop between different asset classes. Just because the fund you have invested in is not moving ahead or is showing a downward trend now, do not attempt to switch. Do not take decisions based purely on market movements. You must understand that the market moves in cycles. The fund which is a high performer today may be the lowest one in a few days and the one you are planning to switch away from becomes the best performer.
Base your decisions on proper research and time the market for some time before you actually switch.
Always have an exit plan ready
Just like it is important to set goals, have an investment strategy, it is equally important to have an exit plan in place. Rather than simply exiting a fund when you feel it is not performing well is not a wise thing to do. Always have an exit strategy ready so that you can transfer your funds in a timely and most rewarding manner.