Nobody knows what is going to happen next
Smart fund managers, stock brokers, important people at the helm of government affairs, even the governor of RBI, no one has an idea what is going to happen next in the markets. People can make only educated guesses.
Some have clues, some understand the present market environment better than the regular lot and some of them can put all the things together and work the maths better but no one knows absolutely what is going to happen.
That makes you as good as anyone else, thus today is a good day to start investing instead of worrying about what is going to happen next.
You will make a mistake investing
Since nobody knows what is going to happen it is but obvious people are going to make mistakes. Even the best of us will make mistakes, the professionals have made mistakes and they will continue to do them. Please bear in mind there is nothing wrong in making mistakes because it is from mistakes that we learn.
It is not important that you made a mistake but it is important that you learn from the mistake and avoid the same or similar mistakes going ahead. Considering that you will commit mistakes it is also necessary to factor those mistakes in your portfolio.
A portfolio needs a buffer, you need to hedge against potential threats, build protection, simultaneously remember to keep your debts at bay and expenses under control. A buffer and a saving philosophy will help overcome the extreme circumstances that one will come across.
There will be extreme circumstances abound as you go about your investing life, being aware about the conditions will help you do better in your investing journey.
The present situation can give you a good understanding about the kind of returns that can be generated from investing, remember “returns will change across cycles and time frames”. Having a reasonable expectation from the portfolio based on the current condition is prudent, one year of great equity performance doesn’t mean that the asset class will continue to deliver similar returns going forward and this fact applies across all asset classes
More importantly keep emotions at bay which can swing wildly with change in the fortunes of your investment portfolio. It is very easy to get carried away and sell your equity portfolio or buy heavily into riskier asset classes.
Panic fear and greed are human traits which will come out depending on the situation but try to keep them under control when it comes to your portfolio. Remember point number 2
Focus on asset allocation
There are many asset classes and different asset classes will behave differently, as mentioned in point 4 different cycles will deliver different returns across different asset class, thus it is very important to have a proper asset allocation in your portfolio, when one asset underperforms the other can deliver better returns and vice a versa making the overall portfolio tick.
Most of the people don’t understand this and go overboard on any one of the asset classes making the portfolio overtly risk or less risky. Remember risk and return go hand in hand.
Have a guide to help you pass through turbulent times.
We as individuals live our lives shuttling between our professional and personal self, it is important that we keep our selves busy leading our lives in our own terms, if we have time to dispassionately look at our own investments then there is nothing better to do. Having a guide, a mentor or an advisor who can help us it can help us not commit mistakes and learn from their experiences. It also helps in understanding the conditions better and in knowing what to expect and what not to expect