Building a risk-adjusted portfolio requires long-term planning. It is equivalent to a test match in cricket. The asset allocation needs to be restructured from time to time to reap the benefits of high-returns with the increasing age. More than 90% of the investors spend their energies on market timing and stock selection and do not focus on asset allocation, which can align their financial goals. Hence, appropriate asset allocation is the need of the hour. Many financial advisers recommend 100 minus your age should be allocated towards equity and the remaining should be invested in the debt funds. However, this asset allocation might not be suitable for everyone. The ideal way is to chalk a financial plan and work towards it.
Here are the five intelligent tips for long-term wealth creation:
1.During the bull run, many investors make monies as much as possible. However, the bear market tests the patience of real investors who continue their investments keeping in mind their financial goals. Having unrealistic goals can often lead to disappointment, especially when you blindly invest money for a short duration in market-linked instruments. The primary aim of the investor should be diversification of the portfolio to maximize your returns and achieve goal.
2. Define goals and invest accordingly. Do not deviate from the objective and choose investment product(s) wisely. Focus on your investment goal and understand the risk-return profile prior to investing in products.
3. The most common mistake done by investors is to understand the risk factors. They invest blindly and follow others while making an investment. A case in point, small-cap mutual funds. Many investors invested in these funds when the equity markets were at peak while in the bear market they didn’t pull out their investments and are now the investments made in the mutual fund are painted red. Investors should understand the risk involved in every product while planning their investments. If plan properly, the return will come.
4. Having a long-term outlook will not ensure high returns, but also reduces the probability of negative returns. The timing of the market is impossible and known only in hindsight. No one can predict the market movements. Therefore, it is necessary to start early, keep investing, and let the investment compound over the long run.
5. Many investors are of the view that investing directly without seeking advice from professionals can reap an extra return on their investments. Finding out the best mutual fund can be as difficult as it requires a deep understanding of the market with your risk appetite and time horizon. The best is to consult your financial planner before diving into investments.