Not every investor achieves remarkable profits. Why? Because many focus on aspects beyond their control, leading them to miss out on significant returns.
To put it simply, most investors focus too much on income generation, failing to realize it’s something they cannot fully control.
How many investors truly understand what’s within their grasp and what isn’t? There are numerous factors like this. So, what can investors control, and what remains outside their influence? Let’s take a closer look.
Table Of Contents:
Things an investor cannot control
- Stock Market Volatility: The market crashes caused by disruptions like the COVID-19 pandemic in 2020, tensions between countries leading to wars, or economic slowdowns that result in market fluctuations. Can an investor truly control these unpredictable shifts?
- Geopolitical Tensions: For instance, the recent Israel-Iran conflict causing market declines. How much power does an investor have over such geopolitical events?
- Company Profits: The profits and losses of publicly listed companies. Can investors influence a company’s performance directly?
- Central Bank Interest Rate Decisions: Policies and interest rate decisions by central banks like the US Federal Reserve or the Reserve Bank of India. Can investors change these policy shifts?
- Inflation Rates: The rising cost of living and how inflation impacts market changes. How can investors control the inevitable effects of inflation?
- Economic Growth or Decline: Changes in global growth and fluctuations in Gross Domestic Product (GDP). How much control does an investor have over these macroeconomic shifts?
Things an investor can control
- The Right Investment Strategy.
- Diversified Investment (Asset Allocation).
- Regular Review of Investments.
- Investment Costs and Fees.
- Tax-Saving Investments.
- Capital Gains Tax Savings.
- Understanding the Volatility of Debt and Stock Markets.
- Financial Goals.
- Long-Term Investments.
- Risk Tolerance.
- Consistent, Ongoing Investments.
- Controlling Investment Behavior & Emotions (Behavioral Finance).
Investors can control aspects like their investment strategy, asset allocation, risk tolerance, investment costs, and financial goals. These factors significantly influence long-term returns.
What should investors do?
Understanding what you cannot control and letting those things take their course, while focusing your attention on what you can control, is the key to a successful start in investing.
1.High Commissions and Fees Can Impact Returns
Are high commissions and fees eating into your profits? Many plans, such as Endowment Life Insurance policies and ULIPs, carry high commissions, which means the returns are often not as substantial.
2.Prioritize Long-Term Investments Over Short-Term Fluctuations
For those invested in stock market-related instruments like company stocks or equity mutual funds, can they control the negative returns in the short term? In such cases, isn’t it wiser to focus on long-term investments rather than short-term fluctuations?
3. Aim for Inflation-Beating Returns with Long-Term Investments
By focusing on investments with a horizon of five years or more, one could potentially aim for returns of 12%-14% annually, which is double the inflation rate.
4. Stay Disciplined with Regular Investments
Also, by focusing on long-term investments, regularly investing through SIPs, and maintaining a disciplined approach, investors can navigate market fluctuations effectively.
5. Reduce Risk Through Diversification
Moreover, shouldn’t you reduce risk by diversifying instead of putting all your money into a single asset class?
Diversification helps reduce risk by spreading investments across various asset classes, ensuring that poor performance in one does not drastically impact the overall portfolio.
6. Regularly Review and Reassess Investments
Regularly reviewing and reassessing your investments is another crucial step. Are your investments aligned with your long-term goals? This constant monitoring will help ensure that you stay on track.
7. Capital Gains Tax Savings
Investing in company stocks and equity mutual funds for over a year can generate long-term gains, which are exempt from income tax up to ₹1.25 lakh per financial year. Why not take advantage of this?
8. Link Investments to Financial Goals
By holding stocks and funds that perform well in the long run, investors can sell stocks or mutual fund units each year to generate up to ₹1.25 lakh in capital gains, thus saving on taxes.
Moreover, this approach can also help investors earn higher returns through reinvestment.
Shouldn’t investors link their investments to financial goals to avoid withdrawing funds prematurely?
For instance, if you’re investing ₹5,000 each month, wouldn’t it be wiser to connect that investment to a specific goal, like your child’s higher education? By doing so, you are less likely to take money out for other financial needs.
9. Leverage Fixed Deposits During High Inflation
During times when inflation rates are high in the country, fixed deposit schemes can offer higher returns. Isn’t it possible to increase investment returns by using some basic investment knowledge?
For example, during global disruptions like the COVID-19 pandemic or wars, gold prices tend to rise. Can investors capitalize on this by investing in gold ETFs when prices dip slightly?
Similarly, in times of high inflation, could increasing investments in fixed deposits be a smarter choice?
10. Match Investment Horizons to Financial Needs
For short-term financial needs, shouldn’t you invest in fixed deposits, debt funds, and bonds? These options provide more security for immediate financial goals. On the other hand, long-term investments should focus on company stocks and equity mutual funds.
Why settle for low returns in short-term options when long-term investments can offer greater wealth accumulation?
11. Questioning the Effectiveness of Fixed Deposits for the Long Term
Many of us continue to invest in fixed deposits for the long term, but do these really deliver the returns we expect?
While they provide returns in line with inflation, the income is taxable, and the gains are minimal after taxes, especially for those in higher tax brackets.
12. Avoiding Losses in Short-Term Market Investments
Similarly, many investors invest in stock market-linked schemes for short-term gains, but don’t they often find themselves exiting with losses due to the high risks involved in short-term investments?
13. Develop an Insightful Investment Strategy
To maximize profits, isn’t it crucial to develop an insightful investment strategy? Risk tolerance plays a significant role here. If you avoid risk altogether, won’t your returns fall below inflation, leaving you with only a minimal income?
Isn’t it better to accept some level of risk and aim for greater returns in the long run? Without this approach, you may find yourself borrowing to achieve your financial goals.
14. Stay Consistent and Invest Regularly
Wouldn’t a consistent investment strategy help you reduce risk over time while still securing solid returns?
Even if the stock market declines, shouldn’t you continue investing regularly, knowing that long-term growth is your true goal?
15.Capitalize on Market Dips for Higher Returns
And if possible, wouldn’t investing more during market dips lead to higher returns in the future?
Final Takeaway:
- Focus on what you can control: Your investment strategy, asset allocation, and risk tolerance.
- Accept what you can’t control: Market volatility, inflation, geopolitical tensions, let them play out.
- Diversify your portfolio: Spread your investments to minimize risks and enhance returns.
- Regularly review investments: Ensure they align with your financial goals.
- Stay disciplined and invest consistently: Even during market dips, long-term growth is the key to financial success.
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