Nothing can be ruled out
America elected a reality TV star as President. Britain walked out of the European Union. Modi invalidated higher denomination notes in India. Pigs flew into space. Ok, so all of the above happened except the last but as an investor, it is important that you rule out nothing. Your plan must not be based on a tactical analysis of events, but rather on the assumption that no outcome can be ruled out.
Find different baskets for your eggs
A plan which prepares for the unexpected is one that diversifies investments. Concentrating them in a single asset or a small set of assets eg: fixed income and gold, can spell disaster when the unexpected happens. As it did in 2016.
Don't go 'all in'
One shot investing in assets such as equities is almost a sure shot way to failure. You must spread your investments over time using methods such as Systematic Investment Plans (SIPs).
You are not the next Warren Buffet
You must have realistic return expectations. Average returns change over time with inflation and interest rates. The ongoing trend of declining interest rates and subdued inflation is likely to last and hence hoping for the returns that equities gave when interest rates were around 10% is not realistic.
Have a plan
This may sound obvious but many people ignore it, nonetheless. They tend to invest in whatever the flavour of the season is eg: midcap funds, without matching their investments with their goals, expectations and risk bearing ability. For people of working age, it is important to allocate money towards emergencies, life and health insurance (where applicable) and to long term investments for their long term needs such as retirement. For retirees, a careful allocation of their savings so that they keep growing to keep up with expenses is important.
Investors must understand the volatility inherent in different types of investments and be prepared to deal with the anxiety and stress that they entail. Newspapers and TV reporters have had a field year with 2016 and even the most thick skinned viewers have been left a little shaken. Relax.
(Money Hangouts is a weekly YouTube Video series conducted by Value Research in association with Birla Sun Life Mutual Fund. To view other sessions and to register for the upcoming session, click here)