5 steps to become a smart investor

With a wide variety of investment opportunities on offer, investors are often left wondering where they should invest their money. And the fact that a large number of money magazines, websites and investment advisors are offering advice on what one must do with money isn’t making investors’ cause any easier. At Personalfn, we believe that investing, at its core is a rather simple activity. If investors stick to the basics, they are likely to do well for themselves over longer time frames. In this article, we present a 5-step strategy, adhering to which can help transform investors into “smart” investors.

1. Have an investment objective in place
All individuals have unique sets of needs like providing for children’s education/marriage, buying a car/house or traveling abroad, among others. Individuals must prioritise their goals and develop portfolios dedicated for achieving the same. Investing in an ad hoc manner could mean that investors fail to achieve their stated objectives. For example, if building a corpus to go on a holiday is a priority, then make an investment plan to achieve the same and invest in line with the plan in a disciplined manner.

2. Recognise the risk profile and adhere to it
Investors should be unambiguously aware of their risk profile while getting invested. And making investments in line with the same is vital at times. Broadly speaking the ability to take on risk reduces as one ages. Having said that, it should be understood that each individual has a unique risk profile and recognising the same should be the first step. For example, two individuals with similar age profiles, but with disparate risk profiles is not an uncommon scenario. Investors need to invest in investment avenues in line with their ability to take on risk. Hence, a risk-taking investor is likely to invest mainly in instruments like equities and equity funds. On the other hand, risk-averse investors should hold a portfolio dominated by assured return instruments like fixed deposits and small savings schemes.

3. Don’t ignore asset allocation
Asset allocation is a crucial exercise to follow while investing. Investing a large portion of the portfolio in the same asset class can prove to be a risky proposition. Diversifying your investments across asset classes like equities, fixed income instruments, gold and real estate among others is important. A well-diversified portfolio helps investors spread their risk across various assets so that volatility in any one asset does not put the entire portfolio at risk because of investments in other assets.

4. Track your investments
Making investments to achieve one’s investment objective does not bring an end to the investment process. Investing is an ongoing process; investors need to continuously monitor the performance of their investments. This will ensure that they are updated with respect to their portfolios. It also gives them an opportunity to make necessary alterations to their portfolio in case some investments have failed to deliver.

5. Select the right investment advisor
Every investment avenue needs to be well-researched before making an investment. But, there are only a few investors who actually research the avenues they wish to invest in; this is mainly because they either don’t have the time or the expertise to do so. Investors would do well to associate themselves with a competent investment advisor who can assist them build a portfolio in line with their investment objectives and risk appetites. The main criterion for selecting an investment advisor should be his ability to offer quality, unbiased advice. Also ensure that he is equipped to provide post-investment services. To establish all these points, it is advisable to go for an investment advisor on reference.