Four easy steps to make your 2023 profitable

Despite the roller-coaster ride Indian markets had in 2022, investor interest in equities continues to grow, with SIP inflows touching an all-time high in December. In my sessions, I find young investors keen to participate in equities and thankfully staying away from investment-linked insurance plans. It is good to see the focus on growing wealth and the ability to take on some risk.

The learnings

The excesses don’t last. From being up 58% in 2021 to closing 64% lower in 2022, bitcoin had a disastrous year. SPACs and Non-Fungible Tokens (NFT), which were booming in 2020, are practically dead. Stock prices of record smashing Initial Public Offerings (IPO) plummeted to all-time lows. All of this showed that supernormal quick returns do not sustain.

Stick to the basics: The 2021 IPO boom was derisive of traditional valuation models and bandied new valuation models based on potential over profitability. In 2022, things have come full circle, with profitability and use of funds raised for business purposes over rewarding early investors being the main criteria for choosing an IPO. Stick with the fundamentals.

Don’t gaze into a crystal ball: No one knows which way the markets will go. Despite macroeconomic concerns, Indian markets still ended positive. Will there be a recession in 2023 or will technology stocks get back to the top? No one really knows. Sure, there are numerous predictions, but these are at best guesses. Investors need to remember that in the long term, markets move higher and hence they need to focus on what they can control, which is how much, where and for how long to invest.

Always be prepared for a rainy day: Did anyone expect home loan rates to jump by over 20%? Or expect global markets to go from additional stimulus to high inflation (and possibly recession), thereby affecting our lives?

Finfluencers are not advisors: They can influence you but are not the right financial advisors. Stock tips, tax harvesting and other money making tricks can be found in abundance in social media but these do not really build wealth in the long term. Finfluencers cannot replace certified financial advisors or plug the advice gap.

The bad

Products continued to triumph over process. And products continued to be chosen based on returns. This explained the many queries received about investing in Peer-to-Peer (P2P) lending platforms and the rush to now invest in gold.

Knowledge on capital gains and taxation is hugely lacking in individuals. Understanding of basic terms such as HRA, equity taxation, what to report in an ITR and ignorance on AIS are commonly seen and this can lead to tax headaches.

Sadly, I still do not see women taking active interest in long-term financial planning. They still prefer to leave money matters to their male family members.

How to make 2023 profitable

Read more about investments: With a limited attention span, investors are getting swayed by headlines like 12% club, no interest loan etc. The criteria people use to choose a health insurance is the premium and they do not go through the exclusions or limits. These are realised only when faced with a contingency. More knowledge can go a long way in growing wealth.

Focus on beating inflation: With inflation expected to be in the 6-7% p.a. range, the prime focus of investors needs to be on having an inflation-beating portfolio. It will require a change in mindset and moving away from traditional investments. Post Tax inflation-adjusted returns is the main number to be looked at in any investment.

Stop self-medicating: The wrong financial choices cost more than a financial planner does. For example, investing in a child insurance plan (expected return @4-5% p.a.) would be grossly inadequate to fund higher education expenses and more expensive versus going with equity mutual funds (expected return @9-12% p.a.), as advised by a financial advisor. Investors tend to believe the role of an advisor is to recommend investments; their role is actually to give you a plan and handhold you through good times and bad.

Don’t just invest; start financial planning: Many of us invest in what we think offers the highest return. There are two problems with this approach. First, we look at the rear-view mirror and go by past returns. Secondly, just investing is not enough. Your investment might not be working towards your financial goal

There is a dire need for individual financial planning in India. Towards this, I would urge stakeholders to take steps to promote the concept of financial planning and build more certified financial planners and counsellors.

Have a financially fulfilling 2023!