More than half of April is gone and everyone knows its time for planning new things in financial lives. And, so TV, newspaper, and website will be full of content telling you “what’s going to change from 1 April 2017”. The irony is majority things you cannot control. Economical events, chemical attack & retaliation in middle-east, bank modifying their charges or GST implementation are all beyond one’s control. So why getting worried on uncontrollable things instead- focus things that matter.
But the focus is on uncontrollable things. What should you be doing when everyone is telling you to focus the uncontrollable and things that do not matter?
The market, of course, rarely acts in a linear fashion and it is impossible to predict: Unexpected random events can cause a correction at any time or markets can simply ignore near-term risks and continue their upward trajectory, as they are in today’s environment. So what can you do when everyone is behind you to “take some action” and trip.
Media plays it very smart. In the name of information, they will make you worried with blood red headlines like this.
The investment industry spends most of its time forecasting future results, predicting economic and political events, and trying to move client assets to the “next best thing”.
But is it wise? Carl Richards – The Sketch Guy explains this futile exercise with this sketch.
They (media) put pressure on balanced investor due to their overconfidence in believing they can predict the market’s performance. But they are just revenue oriented.
They use this forecasting ability as the primary reason that one should put their trust and ultimately their money with them. Hundreds of companies are running just by a promotion that they know future. Be it Stock Tips firms or Exit poll agencies. They claim to have a better processor ability to predict future.
I saw more than 30 articles in last 10 days on “Best of 2017” or “Best Equity fund to Invest” or “Locating the next Dmart” etc. Why don’t these guys sell everything of their own and buy their own predictions?
And, when you get influenced, markets tax you… and this happens:
Instead, it is important that you spend energy focusing on the things that matter which we can be controlled or influenced. Some examples:
- There is no question the markets matter, but we need to focus on our reactions to the markets, instead of the markets themselves.
- Our kids matter to us, but we can’t control how they spend when they grow as adults. However, we can ensure how much inheritance they get and when they get it.
- We can’t control who is going to be PM in the next election, but we can control the tax efficiency of our assets and allocation to minimize current and future taxes.
- Our businesses are important, but are we doing everything we can to mitigate controllable risk? Are we diversifying income/clients and geography?
- The economy is very relevant to our lives. But isn’t being prepared for the inevitable temporary pullback more important than the timing of said pullback?
So what to do? How can you control the URGES to “JUST ACT”.
The following tips may seem like common sense, but according to our research are not always common practice:
Reinforce your value proposition at the beginning of the year. Chances are you haven’t seen your portfolio for several months. Use this time to reiterate who you are on a scale of risk tolerance, what you believe in and what makes your portfolio, as well as to re-establish expectations.
Reconnect to key goals and objectives prior to starting the review. It is critical to reaffirm your stated goals and objectives before getting into the details of the review, as well as to determine whether any recent life changes merit portfolio adjustments.
Don’t let review just be an annual event. No matter how much money you are making in one asset or losing in another. The key is to balance the assets. You have to sell some sugar to buy some salt. But it’s the balance that makes the healthy taste.
The Importance of Staying Focused on the Long-Term
Over time, equity markets have experienced a series of ups and downs. The best way to deal with these market fluctuations is to remember your investment goals and stay focused on the long term.
With a properly diversified portfolio of investments geared towards meeting your financial goals, the day-to-day fluctuations of the markets shouldn’t affect your plan. If you find yourself distracted by dramatic headlines in the financial news, these steps will help you stay focused:
- Speak to your advisor to know the potential volatility of your investments. This will help you maintain your perspective during a performance crunch. (we at WealthWisher give a report of the history of the portfolio that the investor is going to invest. Suppose we give a 60 equity & 40 debt portfolio, we make client aware the extent of momentary loss or decline in value the client can expect in short term)
- Assess the amount of risk you are comfortable with. If you cannot bear the thought of your investment going down in value, stick with guaranteed or low-risk investments. If the prospect of market fluctuation doesn’t alarm you, and you’re patient, consider devoting part of your portfolio to investments geared for growth. (that is the reason, the risk assessment test is a bible and constitution for us)
- Diversify your investments. Combining a variety of investments with different characteristics helps to stabilize returns and reduce volatility. This is a tried and tested technique, and can be enforced using help from a financial
- Gear your asset allocation towards your goals. Asset allocation involves combining investments from the three main asset classes: equities, fixed income, and cash.
- Look at the long term. The longer your timeframe, the better chance your investments have of reaching their potential.
- Don’t panic. Don’t sell just because of investment declines. If you bail out at the bottom, you’re locking in losses, and missing out on potential future profits.
- Don’t jump from to investment to investment. Many investors are prompted to change their portfolios on the basis of unusually strong one-year returns in another type of investment. Last year’s winner isn’t necessarily going to be next year’s top performer.
(Yes SEBI report says 36% investor withdraw investments within six months from mutual funds)
The one thing an investor should be able to control is the level of risk taken on.
And, in this imperfect world, you won’t be able to control everything.
It’s maddening to try and control these uncontrollable factors. You’ll only waste your energy and emotions, by stressing over things that are beyond your control.
This knowledge and acceptance will preserve your emotional balance when you deal with factors that are out of your reach.
Instead, keep a close eye on everything that you can control and change. This includes your study habits, how you use your time, your life goals and more. The more energy you expend on things that are not in your control, the less energy will be available to you for things that you should be controlling.
How do you feel now… after reading the above 1250 words…? Relax my friend. Just ignore the noise and focus on the soothing music around you.
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