Building resilient portfolios: Here are 9 key investing guidelines to keep in mind
May 6, 2024, 16:53 IST
In gardening, providing optimal sunlight and water to plants ensures healthy growth. Similarly, in investing, making well – informed decisions from time-to-time results in strong portfolio performance. This is true, especially at a time when the equity market is at its peak, and investors are uncertain about their next move.
Given below are a few basic guidelines investors can be mindful about when it comes to maintaining their composure during market highs.
Maintain Cash Reserves: Keeping a percentage of your portfolio in cash or cash equivalents helps to take advantage of potential buying opportunities during market downturns. Having adequate liquidity allows you to capitalise on opportunities as and when they arise.
Avoid decisions based on past returns: Avoid relying solely on past returns while making investment decisions. Scrutinise every aspect of the asset class when making an investment decision, especially at a time when an asset class is overvalued.
Stagger investment: Investing lump sum in an expensive market can be risky. Therefore, consider investing in installments via SIP or STP such that one can capitalise on market volatility or price corrections.
Diversification: Most often when the equity market is rallying, investors tend to go overweight on equity as an asset class. This is an erroneous approach. Do ensure at all times that your portfolio is well-diversified across multiple asset classes such as stocks, bonds, commodities, cash equivalents etc. This will help spread risk and reduce the impact of any single asset class on the overall portfolio.
Rebalance: Review your portfolio and rebalance if necessary. Selling off some overvalued assets and reallocating funds to undervalued asset classes can help maintain your desired asset allocation.
Risk Management: Adjust your asset allocation in a manner wherein your investments are in line with your risk tolerance. If you are nearing retirement or have short-term financial goals, then focus towards conservative asset classes such that the capital remains protected at all times.
Focus on Quality: In an up trending market, investors tend to lose focus from quality investments. At all times, ensure you are invested into companies which are fundamentally strong with robust balance sheets such that they can weather any market development.
Stay Disciplined: Stick to your long-term investment strategy and avoid making impulsive decisions based on short-term market movements. Maintaining discipline during market highs helps you avoid expensive mistakes.
Investors should consider their risk tolerance, investment objectives, and portfolio diversification when allocating between large, mid, and small-cap segments of the market. In the prevailing scenario, mid and small caps have rallied significantly and valuations appear stretched. At the same time, large caps continue to be reasonably valued when looked through the earnings prism.
To conclude, while perfection in investing is an unattainable feat, abiding by these fundamental principles can enhance your investment outcomes in the long run. By maintaining composure, diversifying wisely and staying disciplined, investors can navigate market highs and lows with confidence.
Disclaimer: The article is authored by Munnavar Khan Pathan, Mutual Fund Distributor. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class. This article is published by the Insider Studios team. You can get in touch with them on insiderstudios@businessinsider.in.
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Given below are a few basic guidelines investors can be mindful about when it comes to maintaining their composure during market highs.
Maintain Cash Reserves: Keeping a percentage of your portfolio in cash or cash equivalents helps to take advantage of potential buying opportunities during market downturns. Having adequate liquidity allows you to capitalise on opportunities as and when they arise.
Avoid decisions based on past returns: Avoid relying solely on past returns while making investment decisions. Scrutinise every aspect of the asset class when making an investment decision, especially at a time when an asset class is overvalued.
Stagger investment: Investing lump sum in an expensive market can be risky. Therefore, consider investing in installments via SIP or STP such that one can capitalise on market volatility or price corrections.
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Rebalance: Review your portfolio and rebalance if necessary. Selling off some overvalued assets and reallocating funds to undervalued asset classes can help maintain your desired asset allocation.
Risk Management: Adjust your asset allocation in a manner wherein your investments are in line with your risk tolerance. If you are nearing retirement or have short-term financial goals, then focus towards conservative asset classes such that the capital remains protected at all times.
Focus on Quality: In an up trending market, investors tend to lose focus from quality investments. At all times, ensure you are invested into companies which are fundamentally strong with robust balance sheets such that they can weather any market development.
Stay Disciplined: Stick to your long-term investment strategy and avoid making impulsive decisions based on short-term market movements. Maintaining discipline during market highs helps you avoid expensive mistakes.
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Contrarian Investing: A contra strategy involves taking positions contrary to prevailing market sentiment. Invest in assets that are out of favour with the majority of investors. This may involve buying stocks of companies facing temporary setbacks but have long-term growth potential. This approach will help to capitalise on market inefficiencies and generate outsized returns over the long term.Where to invest: Large, mid or small-caps?
Investors should consider their risk tolerance, investment objectives, and portfolio diversification when allocating between large, mid, and small-cap segments of the market. In the prevailing scenario, mid and small caps have rallied significantly and valuations appear stretched. At the same time, large caps continue to be reasonably valued when looked through the earnings prism.
To conclude, while perfection in investing is an unattainable feat, abiding by these fundamental principles can enhance your investment outcomes in the long run. By maintaining composure, diversifying wisely and staying disciplined, investors can navigate market highs and lows with confidence.
Disclaimer: The article is authored by Munnavar Khan Pathan, Mutual Fund Distributor. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class. This article is published by the Insider Studios team. You can get in touch with them on insiderstudios@businessinsider.in.