BE A DISCIPLINED INVESTOR

Every investor aspires to have enough money at different stages of his life to achieve goals like children’s education and marriage, buying a house, going for a vacation and having a comfortable retired life. However, not many follow the right way to accumulate the money required to achieve these goals. While some investors get overwhelmed by the thought of having to accumulate a large corpus for these goals, there are those who do not even start the process of investing thinking that they do not have enough money to invest.

As a result, they often struggle to garner enough resources to fulfill their needs. It’s time for investors to rethink their investment strategies and realign their investments in a manner that they can get the best out of them. The truth is that if investors start early and invest regularly, they can benefit from “power of compounding”. Power of compounding, described by Albert Einstein as the eighth wonder of the world, allows investors to accumulate a large corpus when they allow their money to grow over time.

If you have been facing similar dilemmas, you can untangle them by following a disciplined investment approach. It is a proven fact that investing early is a great strategy for long-term investors. However, if you haven’t been able to do so, it should not be the cause for not initiating the process at all. Moreover, when you invest in an asset class like equity by following a disciplined approach, you benefit from “averaging”. Remember, a disciplined approach is the right way to benefit from the true potential of an asset class like equity as it limits your downside and reduces variance in your returns.

No wonder, more and more investors are enrolling for SIP today. They are realising that an approach of investing a fixed amount at a pre-determined interval is helping them in removing emotions from their decision-making process. However, it is also true that Indian investors have had mixed experiences from their investments through SIP, especially in equity and equity-oriented funds. The fact that many investors discontinue their SIPs every time the stock market turns volatile is a testimony to their indiscretions in following an approach that propagates total discipline while investing.

Therefore, to ensure investment success on a regular basis, you must adopt a disciplined investment approach. Remember, too much of experimentation and doing things on ad hoc basis can spell disaster for your financial future. Here is how you can get the best results by investing through SIP:

Create a Budget: Many investors, especially those who start investing late, often make the mistake of committing a large amount for investing through SIP. As a result, they find it difficult to continue the process after sometime. Besides, rather than reducing the amount of SIP, they stop the process itself. Therefore, you must start conservatively and gradually increase the amount to ensure continuity. Budgeting can go a long way in ensuring your investment process continues un-interruptedly.

Invest with a Committed Time Horizon: It is quite common to see investors enrolling for SIP for random periods. The rationale behind this approach is to analyze the performance over a period of one year or so and then take a call for the long term. This is an illogical way of assessing not only the performance of an asset class like equity but also the effectiveness of a powerful mechanism like SIP. The right way would be to invest with a time commitment that is aligned to your long-term goals. Remember, the longer you follow this process, the more you benefit from “averaging” and “power of compounding”.

Understand the Risks Associated with an Asset Class: Many investors have the misconception that they can’t lose money if they invest through SIP even while investing in equity funds. The truth, however, is that a disciplined approach only mitigates the risk of volatility and does not eliminate it completely. However, the impact of volatility gets minimised to a great extent if you continue the process for a longer time period.

Continue the Process Through Volatile Periods: While the objective of investing through SIP is to turn volatility in the stock markets to one’s advantages, many investors rush to stop SIP when the market starts falling. As a result, they miss out on opportunities to invest at lower NAVs. Therefore, you must continue the process for a committed time period, irrespective of the market moods.

Choose 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.