Five key Rules in the world of Investing
Five
key Rules in the world of Investing
1. Start
investing today –Investing is a choice that you
must make at the right time and history has shown that the time is always
right. Especially for growing economies like India, long term value investing
is a great tool for wealth creation. It is a disciplined approach of wealth
creation that builds foundation for your future. Example- At age of 25, if you start investing
5000 per month and money grows at 12% per year, then at age of 60 you have 2.70
crores. Just a delay by 1 year (or 60000 less), will make your savings to be
2.40 crores at the age of 60 years. That is you have 30 lakhs less, just
because of 1 year delay. This is because of power of compounding.
2. Nurture the
habit of investing - If you had invested 1 lac in
sensex in 1984, it would have become 1 crore in 30 years, i.e 100X
multiplication. In equity market, compounded interests are boosters in your
long term wealth creation process. Just like we spend regular, there is a need
that we invest regularly. Systematic investment plan is the best way to cater
this need of ours. Investing small amount monthly, inculcates a habit and gives.
Usually people invest what remains post spending. The equation should be
expensing what is left post investing.
3. Invest in
long term assets- Value investing is long term
investing! Learn the difference between savings and investing. Wealth is created exponentially by staying invested for a long term.
Take the example of the 100X study mentioned above. So today, commit yourself
for a long term investment for your financial goals. Usually what we have seen
in our experience of 25 years is initially investor has long term time horizon,
but then emotions come into play and his long term get converted to short term.
This should be avoided for wealth creation.
4. Focused
Portfolio - From our childhood we are trained
to be focused to achieve the higher productivity. It works the similar way with
any wealth creation tools. Too much of diversification is difficult to manage
and keep a track of. It is advisable to focus on the less diversified portfolio
which is adequate and manageable. This year, diversify your portfolios
adequately but not unnecessarily. Usually over diversification leads to over
lapping which negatively effects our returns. I have seen some new investors
who have every fund in their kitty in the name of diversification. This usually
happens when we are not confident about our research or study. Having a focused
portfolio is always much better. It also makes tracking easier.
5. Proper Research- Knowledge is the best weapon. It is the most important investment
everyone must make. Try and learn about your investments. If you are investing
in equity asset class, learn as much about the companies as you can so that you
understand the worth of your investments for a long term. Updating your
knowledge periodically gives you a perspective to anticipate the future
performance. Or buy mutual fund or stock through an advisor who you think is
good in research. Always focus on research and give it value and due
consideration. Investing without research is dangerous just like cycling
without learning how to cycle.
Regards:-
PANKAJ LADHA
CA ANANT LADHA
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