Indian economy and the financial markets both were on shaky ground in 2019. Equity market was volatile, debt investors were a nervous lot and economic numbers did not instill confidence. Nifty has returned 12-13% for the year, but small-caps and midcaps have delivered negative returns, disappointing the investing community at large, especially Indian retail investors, who have heavy exposure to such stocks. Such incidents have occurred in the past in 2015-16 when the indices had fallen over 20% even when the economy grew by nearly 8%. In 2019 we witnessed one of the most hated rallies, with only a few pockets of the market creating wealth while a large spectrum of stocks still languishing mainly due to the somber economic scenario captured in the lowest GDP growth in the last six years. The Stock Market is at an all-time high but GDP growth's Six-quarter decline is in the longest spell in 23 years, the logical conclusion of this divergence is the hopeful nature of investors, who are investing when the economy is at the bottom, so they can smartly reap the benefits when times change. Considering the current market rally, the most likely scenario seems to be a turn in the economy a few quarters down the line, which will justify high valuations later. During the past few weeks/months, the government had genuinely tried to lubricate the economy, the results of which can be expected only in the first quarter of next year. The market is likely to move sideways with an upward bias amid hopes of a revival package in the Budget. So, here are 7 New Year’s resolutions to become a Better Investor. 1) Learn something new or something more Stock investing requires a careful analysis of financial data to find out the company's true worth. This is generally done by examining the company's Fundamental and Technical analysis. The fundamental analysis comprises of Company’s management, cash flows, valuations, books, debts, past performances, dividend, its short term, and long-term potential to back its debts, vision, mission, scope, strategies, future perspective, key people, bottom-line performance over time, earnings, etc. The technical analysis comprises of Candlestick charts, different indicators to find out the stock current trend, entry points, and exit points. Different strategies and indicators for daily trade mechanism. (Learn here) 2) Go for a Portfolio Diversification Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.
One of the keys to successful investing is learning how to balance your comfort level with risk against your time horizon. Invest your retirement nest egg too conservatively at a young age, and you run the risk that the growth rate of your investments won't keep pace with inflation. Conversely, if you invest too aggressively when you're older, you could leave your savings exposed to market volatility, which could erode the value of your assets at an age when you have fewer opportunities to recoup your losses. It is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event. 3) Build an appropriate emergency fund. This is the most critical feature that you should keep in mind when you are choosing where to park your emergency fund. You should be able to withdraw the money when you need it without any delay. At the same time, you should ensure that you do not get penalized in the form of an exit load or pre-withdrawal penalty fee. The value of the amount invested should not go down either and must deliver guaranteed returns. Having money in a high rate savings account can help you avoid borrowing. The financial buffer an emergency fund provides can keep you afloat in a time of need without having to rely on credit cards or take out high-interest loans. This is especially important if you already have these obligations. 4) Find Consistency in Investments Investing randomly into different asset classes without ascertaining their asset allocation, not following a disciplined approach to investing, exiting abruptly from an asset class and investing without a clear time horizon are some of the most apparent inconsistencies in their investment process. For example, every equity investor hopes to be suitability rewarded for the risk that he takes by investing in this volatile asset class. Therefore, he feels happy when the stock market does well. However, as soon as he is faced with vagaries of the stock market, the excitement often turns into a fear. This often leads to undue focus on short term performance with a high degree of aversion to losses. The resultant hurried exit often denies investors an opportunity to benefit from the long-term potential of this wonderful asset class. So, Participate actively in the decision-making process, Rebalance your portfolio periodically and remember Consistency is key to investment success. 5) Define your long-term financial goals The ultimate long-term financial goal, of course, is funding a comfortable retirement. It’s never too early to get that ball rolling with regular, automatic deposits in tax-advantaged investment accounts. It’s hard to beat rupee-cost-averaged investing over a period of 30 to 40 years. Other long-term financial goals could include living debt-free, paying off your mortgage; taking a lengthy, once-in-a-lifetime trip; getting your kids through college debt-free; building an estate that would give your youngsters options in life; or leaving a legacy to a favorite nonprofit. A long-term goal is something you want to accomplish in the future. Long-term goals require time and planning. They are not something you can do this week or even this year. Long-term goals are usually at least several years away. GOSPA Formula. The letters in the word GOSPA stand for Goals, Objectives, Strategies, Priorities, and Activities. 6) Put Physical and fiscal fitness on Priority Health is the Biggest Wealth in Life. It brings in desired Happiness, Enjoyment and Pleasure. There is a strong perspective that, unless a person is Healthy, it’s difficult for him/ her to enjoy it. Money doesn’t have a value unless it is really enjoyed. Simply the Possessions of money/ things don’t make an individual Rich, It is the Good Health. This implies that Health strongly influences a person’s capability to enjoy the Wealth which he might have amassed. Happiest people in the world are the ones who have Health and Love in their life. You might create any shade of happiness, but it has to be there. Those who are Sick or have Poor Health, due to any reason whatsoever, must learn to compensate their condition with Mental, Psychological, Spiritual health and finally Financial health. 7) Do your analysis to make the right decisions: Of course, the Analysis part is a must before making any right decision. For example, In case of investing if it not just about Fundamental and Technical Analysis that you must focus on, but other factors like repo rate, fiscal deficit, overseas market conditions, exports & imports data, GDP, political issues, IIP data, PMI, elections, projections, etc. Some of the investors even start investing by opening demat account without even knowing the brokerage charges, Thanks to start-up spree that made stock investing much easier, brokers like Upstox offers free trading with zero brokerage. So, investing requires careful analysis of financial data to find out the financial health of any company or the country as a whole.
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Source: ET, Moneycontrol, Investopedia, businesstoday