Having a disciplined and simple approach to investing is what financial planning is all about. I have listed a few rules of thumb that will make you a successful investor.
Following these simple guidelines will successfully allow you to accomplish the goals that you are saving for.
Always be communicative
An open line of communication is best between you and your advisor, and any changes or questions that you have in mind should be communicated to your advisor, so your financial plan can be altered to suit such changes. The same applies to the advisor, of course, who should take it upon himself to present alternatives as well as keep you continually informed.
Once you have stated your financial goals, your financial advisor will develop a plan that will help you meet your goals.
Don't expect fast gains
Remember that the market will always go up and down. It is the responsibility of professional managers to trade stocks; so let them do the job for you since they have made it a point to actively keep a keen eye on your investments.
Your sole responsibility should be to systematically save for the goals that you have set in place. The main point of financial planning is to achieve your financial goals via a long-term investment plan that will slowly yet consistently grow. Having such a long-term perspective will allow you to be more comfortable with the volatility that exists in the stock market.
Holding investments justifies keeping a long-term mindset
There is no way a long-term investor should be selling now and cutting their losses, unless you purchased rubbish. If anything, this should be considered an opportunity to invest in solid companies at bargain basement prices. Generally speaking, many individuals wait for sales when they make purchases, so why not use the same philosophy for your investments?
All these present theories that try to define the ideal portfolio are geared to do one thing: confuse investors. Having options is never a bad thing; although having too many can be deadly, especially those that advocate that any person can do investing. It takes years of professional training and experience to create a portfolio that will beat the market consistently. It is all about discipline, which will reap its benefits once the market becomes favorable.
No opportunities are planned
We have always heard that it is a good time to invest. Honestly speaking, it is never a bad time to put money aside for some particular purpose. You are probably thinking that when the KSE Index was at 900, it was definitely not an opportunity. But if you look at the current index moving towards 2500 it was surely a lost opportunity.
Quest: Returns should be steady
Your ideal investment goal is to sustain a consistent rate of return. In practice this is awfully difficult, but to say that you want to get an average return of 10% is something that is a lot more manageable, especially when history has shown that the market has provided an average annual return of close to 14% over the long-term.
Timing: Unfortunate volatility
Any investor who tries to time the market is sure to lose their money at some point. By actively trading your investments, you have now exposed yourself to a lot more risk. Any person who is saving for their retirement should not be taking such chances.
Many people would consider themselves high-risk investors, but the majority also change their mindset once the market turns around like it has. Circumstances can change, but your investment profile generally stays the same because it is a personality trait.
Simply put: if the market decline has really bothered you, then you should not be an aggressive investor.
Wait before expressing your zest
It has always been said that you should not let your emotions get involved with your investments. It is evident that this is unlikely, but an effort should be made. The less emotional you are about your investments, the easier it will be to handle the market swings. Adapting and understanding market swings will allow you to succumb to market volatility.
The only time your emotions should get to you is when you realize that you have accomplished a particular financial goal. It is at this point that you can celebrate and reap the benefits of your hard work.
The rules of investing
Now that you have been introduced to the basics of financial planning, you are definitely prepared for some investing. Just remember that professional advice is invaluable, especially when you consider that financial planners deal with such issues every day, whereas a typical investor does not.
By following these simple guidelines, you are sure to achieve many of your investment goals. Just remember that patience is a virtue, emotions are not! (At least when it comes to investing…)
Rahim Panjwani completed his articleship from KPMG Taseer Hadi Khalid & Co. and qualified for ACA in 2000. In addition to being an ACA, Rahim is a qualified APA from PIPFA (1998) and CIA from the IIA (2001). He has also successfully completed a training course on Management Auditing from London School of Economics. His past work experience includes working with Hongkong Shanghai Bank and Serena Hotels. Presently, Rahim is engaged with The Aga Khan University – Funds Management & Corporate Affairs Department. He is a regular contributor of articles in Dawn, Business Recorder and News. He can be contacted at firstname.lastname@example.org