Six rules to become an investment yogi

When it comes to investing, there are a few rules that you could implement and follow in a disciplined manner in your quest to create wealth. It is difficult for the majority of investors to stay disciplined because, in the real world, income growth and market conditions fluctuate, even as personal desire and needs grow. One way to become a disciplined investor is to observe and learn from what successful investors do and create a plan that you can follow for decades to come.

Start Investing early

Investing at an early age gives you the advantage to plan your investments and give it enough time to grow and achieve your financial goals. Disciplined investors invest early and frequently. They don’t invest large sums of money for one year and nothing the next.

They diligently invest money month after month, year after year, and watch it grow. You also benefit from compounding when you start early, which is earning returns on the returns received in the preceding year over the long term.

Invest regularly

When it comes to investing, being disciplined, and investing at regular intervals is a better idea than trying to time the market. Investing regularly, takes away the guessing game from market timing, thereby allowing you to buy more when the markets are down and less when they are up, averaging out the overall cost of investment.

The principal of averaging is best experienced over a period of time, and when you invest systematically in mutual funds through systematic investment plan (SIP).

Keeping a disciplined approach also checks your emotions when investing, as it prevents you from not investing when the markets fall or get excited to invest more when the markets rally.

Keep emotions away from investments

Money is an emotional subject, but your emotional outbursts must not mar your investment decisions. It is a fact that when our emotions get involved with our investments, we tend to make mistakes.

For instance, exiting investments when the markets are down or entering markets when the valuations are high are all recipe for an investment disaster waiting to happen. When investing, you should always ensure not to have any emotional attachment with your investments because they certainly don’t have any feelings for you.

Learn about market cycles

Seasoned investors have experience of staying invested through market cycles of lows and highs. Stock market volatility is a reality, and if you are new to investing, look at the data from 2008 onwards to get an idea of how the stock market has moved over the last decade from hitting new lows to new highs.

If you go back longer, say over 3-4 decades and observe the stock market cycle, it will be reassuring to note that over such long periods, though there are down market cycles, overall the markets have given substantial returns.

Balance your portfolio

Asset allocation and diversification are the bedrock of disciplined investing. Asset allocation and diversification allows you to maximize earnings while mitigating risk.

However, over time, investments across assets tend to take a different path, which needs monitoring and rebalance once a year by selling certain assets and buying into others. This way you maintain your ideal asset allocation, which will help you reach your financial goal.

Invest with a financial goal

When it comes to investing, it pays to follow a goal-based approach. Start by listing out your financial goals such as marriage, children’s education, vacation, and post-retirement expenses.

Once you have listed out your goals, start investing by allocating your hard-earned money in each one of them.

The advantage of following a goal-based approach is that not only you know how your investments are faring towards each of your goals, you will also be in control of any changes you need to make to your investments to achieve your goal.

(The writer is Joint Managing Director & CEO, YES Securities)