Why should you follow a disciplined Investment strategy?
Created on 10 Aug 2020
Wraps up in 5 Min
Read by 3k people
Updated on 24 Aug 2020
While a whole day is taken to commemorate "friendship day", I think it's crucial we know who are the world-famous besties. You might come up with a lot of answers. But if you see financially, then you will be awestruck to find that discipline and money are two close pals, whom we mostly don't acknowledge. Without discipline, you will not be able to accomplish the investing or saving goals you have in your mind. However, mastering a disciplined investment strategy is not that easy.
So it's time for you to learn as to how one can invest in a disciplined manner. So come on, quickly dive in to find out.
Keep your emotions intact
Emotions are your greatest opposer when it comes to investing. It dwells within you and takes over your brain meddling with your ability to act rationally. As a result, you will be pushed to take those decisions which might easily divert you from your ultimate goal, and it eventually takes you towards the path of failure. There are times where you might be operating under the control of your emotions without even knowing. Emotions cause you to involve in a spree of selling or buying based on unrealistic truths or assumptions. When you are fearful of the market, your first instinct will be to sell; greed causes you to buy more and so on.
Say, for instance, due to Covid-19, the stock markets all around the world witnessed a great fall. Even assets like 10-year bonds saw a negative movement. Stocks saw a correction of up to 50% A disciplined investor will know that anything that happens in the stock market in the short term should not impact your decisions unless you are a daily trader. He will not sell all his securities unless there is a dire need or liquidity crunch.
Be calm and let your investment grow
We always give a place to desire. We see the short term satisfaction and give up on the long term goals. There are many people who either lose direction along the way or entirely give up. It is important for a disciplined investor to stick to his financial goals until the objective is established. Trying to quit halfway is like running a marathon and giving up while you are just minutes away from victory. No runner will have a bite of victory until he touches the finishing line. Hence, like a runner, an investor should be calm and collected and ensure he had run the entire marathon before expecting the returns.
You worked hard and lost 10 kgs. You are happy with your weight, and in due course of time, you forgot about exercise at all. In such a case, you will surely fail in your intention or aim of remaining fit.
Similar to the case above, I have noticed people who invest a lump sum once and quit considering an investment strategy for the next five to ten years. If you are one among them, then it is high time you change your approach. Investing regularly inculcates the habit of saving. It is a useful assistant which helps you in keeping track of the various unwanted spending. It also helps you in understanding the art of managing money. Further, in the long run, you will realize the drawbacks of debt and try to accumulate wealth rather than simply spending on unwanted needs. Investing regularly helps you in wealth accumulations as well.
E.g., say you are a 30-year-old with two children. In that case, you can take up investment into mutual funds. A number of SIPs (systematic investment policy) schemes are available in the market. Through this, you can invest a small portion monthly.
Have a backup
Human beings are easily diverted from their objectives in order to address their short term needs. Either we are left with no choice, or we are driven by desire. Say Mr. X is a person who invests Rs.10,000 every month towards his portfolio. He wanted to have a luxurious retirement planning, and he is investing regularly in order to achieve it. Unfortunately, he had to meet an emergency financial need, for which he exhausted all his investment strategy. Most of you must have gone through a similar experience. In order to stay away from any such things, it is highly advisable to keep two separate accounts. While one account is devoted to investing in your goals and financial wishes, others must be built entirely to meet your emergency needs. In such a case, your temptation to use the invested funds will stay at bay.
Have a strategy and accept the market
It is extremely important for an investor to have a strategy upon which he or she will be operating. The strategy should align with the goals, time frame, risk-taking capacity, and other factors. Have a definite plan and follow it irrespective of the market volatility. Don't let a random interview or an unrealistic fact influence you or your decisions. When doubtful, get enough information or seek the advice of the expert before you reach the verdict. In short, follow a blueprint backed by an effective strategy and build a barricade between your judgments and market behavior such as herd behavior, etc.
Observe and scatter
The climate that prevails in country XYZ is ideal for growing rice. So in a view to bag an enormous Profit, I planted acres of rice crops. Unfortunately, pests and other uncontrollable factors caused a huge loss. If I were to plant a few cash crops along with rice, there is a relatively lower probability of me facing a loss.
Similarly, if you are going to put all your money into a particular sector or industry, then you will be the loser when the markets turn against your expectations. Scattering your eggs helps you to remain tension free. Don't forget to rebalance and diversify the portfolio as and according to your strategy and risk-taking ability. Just investing and not worrying about is also not a suggested activity. You should frequently review and check the portfolio. This will help you to reach your goals faster.
Don't build castles in the air
Another notable similarity among many investors is they expect the unreality. In other words, most investors want to be rich immediately or expect extraordinary profits from their investment strategy. They take risks that are not required for their portfolio. An investor who ignores all such expectations is sure to reach his goals.
As you know, mountains are not moved in a day. So stay consistent, committed, and don't be disheartened by minor downfalls you are facing along the way. Because the feat of success might be closer than it appears.
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