5 evergreen investment tips towards long-term wealth creation

Most investors invest with the thought of making as much gains as possible. However, having unrealistic expectations from your investments can lead to disappointment, especially when the instrument you are investing provides market-linked returns. So, how would you analyse whether you are getting good returns on your investment? One way is to link the expectations to a financial goal which has a certain time horizon for its accomplishment.

Amar Pandit, CFA, Founder & Chief Happyness Officer at HappynessFactory.in told Moneycontrol that they advocate the Plan-Process-Product approach where the focus of investing is goals. This involves identifying goals, which is the most crucial step. Next is strategising in terms of determining the financial cost of goals, risk behaviour and contributions required. “Product consideration, i.e. the funds or individual instruments, should come only in the final stage. Investments did this way will seldom go wrong,” he added.

Here are 5 things to keep in mind while investing to maximize your returns and have your goals fulfilled:

Pandit says adopt the “why” (goals) – “how” (process) – “what” (product) approach. “The industry mechanism is built to portray highest returns as the criterion for measuring investment success. Chasing returns is a huge mistake as it makes you worry about daily/weekly/monthly performance. What matters ultimately is that your goals are met in time. To develop this mindset, focus on goals and understand your risk profile before selecting products,” he said.

Individuals get carried away in anticipation of the achievements, rewards and recognition in future. Many get into those dreams even before starting journey towards achieving those milestones. This is even applicable to the way we spend or manage our savings.

Ajit Narasimhan, Chief Marketing Officer, Sundaram Mutual said that he meets a lot of people in their 30s who suddenly realise that they haven’t started their investment planning/retirement planning. “The most common mistake these people make is that they jump into an investment product blindly. Savings and Investments aren’t one-time actions. It’s a process and needs to become a habit. Understanding risks involved is a very important aspect of investment planning. Know the worst that can happen to your money. Don’t always think of the possibility of a rosy scenario only. Plan your investments based on risks involved with clear objectives and the rewards will come,” he said.

Timing investment is logically impossible because the best entry and exit opportunities are known only in hindsight. No one can predict market movements with certainty. However, it can be expected that markets will give positive returns in the long term. Therefore, what is important is to allow your investments to compound over a long time.

Sometimes the process of elimination works best in decision making. Ajit Narasimhan says that he takes inspiration from MS Dhoni’s leadership both in my job and at home. A decision on where and when to invest can be a complex decision for all of us. It’s best to eliminate some of the lesser relevant variables in this process. Identify the lesser relevant variables first such as which month you will start your investment, NAV of a mutual fund scheme, Exit Load of a mutual fund when you’re looking at long-term wealth creation, short-term performance of a fund when you’re looking at long-term wealth creation. “Always keep the larger picture/objective and eliminate the distraction in your decision-making process,” he said.

Investors today are constantly bombarded with recommendations on “the best” stocks, funds and insurance. “Finding out what is good for you can be a little tricky because it requires an understanding of the basic nature of the product and matching suitability with your needs and circumstances. Your best bet is to consult a trustworthy financial planner,” said Pandit.