One should properly diversify the portfolio, but over or under-diversification will not work. Reasonable diversification is important, says Mukesh Kochar, National Head of Wealth, AUM Capital.
In an interview with MintGenie, Kochar said that investors must refrain from investing in a sole financial instrument or those of the same kind of instruments, as putting all eggs in one basket can be a risky move.
Edited Excerpts:
How do you advise new-age investors to plan and implement investment strategies?
Most of the new-age investors have not seen any downfall in the equity market. Investors who have come to the market post covid have enjoyed a rally in the market with low volatility. One must be aware that the bull and bear phases are synonymous with the market, and the bull market will not last forever. So first of all, allocate only long-term funds to the equity market and maintain proper asset allocation with goal-based investments.
One should properly diversify the portfolio, but over or under-diversification will not work. Reasonable diversification is important. Invest regularly and use any deep fall in the market to invest. One should not look to make quick money as this may be risky and capital may erode. Avoiding the noise of penny stock is very important. One should look at the broader picture over the long term while investing. These are a few things one can keep in mind.
Portfolios often fall short of their investment goals. What should investors do then?
Investors generally invest more in a rising market and sell and remain sideways in a downward-trending market. Also, they start very late and expect extraordinary returns in a short period to make quick money. One should always invest more in a down market and wait patiently with regular investment to reap the benefits in a bull market. The longer the investment, the more the power of compounding works and hence higher the multiplication of money.
What are the most common mistakes that derail many people from meeting their financial objectives?
Even a trivial financial mistake can derail people from meeting their financial objectives. One such mistake is the absence of diversification in different asset classes. One should refrain from investing in a sole financial instrument or those of the same kind of instruments, as putting all eggs in one basket can be a risky move for any investor. Inadequate knowledge and disregard for prevailing market conditions is another mistake that can make investors inefficient in accomplishing their financial objectives.
Another mistake is not starting early investment in financial planning for retirement. To have financial security during retirement, one must start early. Creating PPF accounts and investments via SIPs is a great way to build a larger retirement corpus. These are some of the mistakes that can be rectified by investors to avoid facing a financial crisis in the long run.
What steps should people take to stay current on financial policies and tax regulations?
One should read financial newspapers in digital apps regularly. Since people are busy in their areas, financial advisors can be consulted for any such thing.
There is more focus on earnings than asset allocation. What is your take on the same?
Asset allocation is the base which has to be done prudently to get the desired result. Otherwise, overallocation or under-allocation is hazardous. This can be done based on tenure, expected risk-return, market conditions, opportunities, hedging, etc. Earning is the outcome of asset allocation. So asset allocation is a process and earning is the outcome. So, focus on the process rather than the outcome.
Many youngsters are now playing a leading role in managing at least a part of the portfolio themselves. How do you envisage the future of wealth management in the long run?
Nowadays, most of the retail volumes are generated via online mobile applications, resulting in a significant amount of investment from young investors. Technological advancement has made it possible for people to conveniently invest in the stock market.
At the same time, Covid-19 has played a pivotal role in introducing these investors to the market. There had been a downturn in the stock market followed by a gradual rise, resulting in many investors earning money for the first time. It is also evident that youngsters are seizing the opportunities provided by the Indian market into early savings so that they can achieve their long-term goals through the capital market. As the Indian market continues to offer opportunities to the younger generation, this base will likely expand even further.
The future of the wealth management industry is coupled with human expertise and digital prowess. Post-COVID, the wealth management sector has witnessed a significant digital transformation. Wealth managers have seemingly boosted their efficiency by embracing a platform-oriented approach, giving personalised assistance, and customizing investment approaches to create a holistic approach to meeting the demands of individual clients. The inclusion of technology will propel the importance of data analysis while protecting the invaluable client-advisor connection.
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