Invest Regularly to Achieve Investment Success

A disciplined approach to investing is the right way for not-so-experienced investors to tackle volatility and benefit from the true potential of an asset class like equity. However, there is a large section of investing public that either does not follow this approach in the right manner or doesn’t follow it at all. This is surprising as a disciplined approach helps investors in more than one ways. While on the one hand they get into the habit of saving some amount regularly, on the other hand they benefit from “averaging” as they invest a fixed amount at a fixed interval. Besides, it helps them in limiting their downside and reducing variance of their returns.

It is quite common to see investors allowing their emotions to override rational investment fundamentals. However, by investing a fixed amount at a pre-decided interval, regardless of market conditions, they can remove emotions from their decision making process.

Investors’ apathy towards this wonderful investment approach can largely be attributed to their not so good experience of investing through SIP as well as investing in equity funds itself. However, in reality, the fault lies with investors’ inconsistent investment approach in following a strategy that requires total consistency through one’s defined time horizon and taking a short term view for an Hemant Rustagi CEO, Wiseinvest Advisors Pvt Ltd Hemant Rustagi CEO, Wise invest Advisors Pvt Ltd asset class that requires long-term commitment. A large number of investors stop their SIP every time the stock market spiral downwards and hence miss out on opportunities to invest at lower levels. Here are a few aspects that you must remember at all times:

Be sure about how much you can invest:

While starting you investment process at an early stage of your working life is the right first step, it is equally important to be very sure about how much you can invest on a regular basis. Don’t make the mistake of starting SIP with an amount which you may find it difficult to continue after sometime. Therefore, it would make sense to start investing conservatively and gradually increase the amount to ensure continuity. Budgeting can go a long way in ensuring this.

Don’t invest without a defined time horizon: 

You must be very sure about your time horizon before you start investing through SIP. Your defined time horizon will help you choose the right asset class as well as prepare you mentally to hold on to your investments for a certain period. Many investors make the mistake investing in equity funds through SIP only for a year or so thinking that they will analyze the performance for a year and then take a long-term call. This is an illogical way of analyzing the performance an asset class like equity and assessing effectiveness of a powerful mechanism like SIP. Remember, an approach like this can expose you to higher risk rather than mitigating it.

Don’t stop investing when the markets correct:

The major objective of investing through SIP is to benefit from averaging. However, while investors happily invest during the rising markets, they stop SIP during the market downturns. As a result, they lose out on opportunities to bring their average cost down. Therefore, the key is to continue the process for the committed time period, irrespective of the market moods.

Select the right option:

The power of compounding works out the best when you invest for the long-term and allow the gains to remain invested. Taking out money at a regular interval, say every year, by way of dividend, would defeat the very purpose and hence the results are likely to be disappointing. Therefore, you must opt for “growth” option.

Avoid investing in aggressive funds:

While deciding the right asset class is important, it is equally important to choose the right segment while investing in equity funds. Don’t make the mistake of chasing short term performance and investing in aggressive funds such as sector and thematic at the beginning of your investment process. Remember, the bread and butter of your equity fund portfolio at all times should be large cap dominated multi-cap funds.