Investments are a function of various aspects: the risk appetite of the individual, a fund available for investment, the choice between different asset classes, investment objectives (long-term capital appreciation or short-term gains), and liquidity preferences. It is a complex process that involves time, energy, and a professional approach. ‘Portfolio Management’ has become a specialized profession for aiding investors. A portfolio manager understands the client’s investment goals, time horizon, and risk appetite and advises appropriate allocation of funds in diverse investment vehicles. Opening a demat account is a simplified process, and hence, many retail investors even opt for self-management of their funds.

After the physical trading of the stock was discontinued, investment penetration in the market improved greatly. An investor is always concerned about capital appreciation along with earning sufficient returns. Here are some of the dos and don’ts of investing:

DO’S-

Research: Whether a professional is hired to make your investment decisions or you do it yourself, the most important caveat is to invest after adequate research. Even hiring an investment manager or portfolio advisor should be backed by research. If you aren’t doing them yourself, you must be able to repose confidence and trust in the person handling your investments. There are many varied sources of information in the digital era – books, periodicals, case studies, literature authored by renowned investors like Warren Buffet, and informational television shows. There is no dearth of knowledge available for acquiring information about the basics and complex investing.

Have clear objectives: Every investment is time-bound and goal-oriented. Investors should be clear about their aim of making the investment. A 50-year-old man investing in real estate would aim for capital appreciation in the long run, while a 35-year-old woman investing in shares would aim for short-run returns. Each individual’s risk profile and investment objective are different, and every investor must be clear about expected returns, time frames, liquidity preferences, and periodicity of returns.

Diversify A common mistake early investors make is investing maximum or all of their funds in a single asset class, such as shares or real estate. It is always wiser to diversify investments to reduce risks and improve the probability of returns. Putting all your eggs in the same basket runs the risk of exposure to higher risks. If the investment fails, the investor will also lose the capital invested. Diversification across assets helps to minimize risks. Even in the share market, stocks are bundled as per industry and market capitalization. Investors can easily choose the total investment allocated in these categories suited to their preferences.

DON’TS-

Invest late: Investments should begin at a young age, as it takes time to understand the intricacies involved. Making intelligent investments is an art and science, and the judgment of when to enter and exit the market takes time to evolve and develop. Therefore, investments are best begun during the productive age (20 to 60) without postponing the decision. Make small investments young, but don’t postpone the decision until later. Also, investments should never be made with emotion. They should be thoroughly researched and planned,, not based on ‘feelings’ or ’emotions.’

Ignore liquidity: Investors often ignore the requirement of adequate liquidity in the overall portfolio. If all the funds are locked in long-term investments like real estate, fixed deposits, etc., it could be difficult to meet short-term liquidity requirements that could arise unexpectedly. Therefore, keeping a certain percentage of total investable funds in liquid assets is always advisable to quickly convert to cash. Some liquid assets are government securities, mutual fund investments, deposit accounts, and investments in shares.

Overanalyse: After researching successful investment strategies, speaking to financial advisors, and making their own calculations, investors often overanalyze before making investment decisions. The analysis is undoubtedly important, but overly analyzing the pros and cons of a strategy could waste time and lead to a loss of opportunities for the investor. Funds must be allocated wisely in a time-bound manner across asset classes as decided by the investor or his financial advisor. Don’t overthink and miss profit-making opportunities.

Investment has undergone a sea change since the digitization and dematerialization of shares. It has become more accessible, comprehensible, and profitable for small investors. Returns generation and capital enhancement are now accessible to small, mid-level, and large investors. Even foreign investments are possible in shares, bonds, and foreign currencies. However, investors should exercise appropriate caution to minimize losses and maximize gains from investing their hard-earned money in any asset class.