Should our investment approach be any different this new year?

People think about their personal, professional and financial aspects and make resolutions when we come to a new year. It is almost as if the passing of the last day of December and the heralding of the first day somehow changes a whole lot of things! In fact, nothing really changes and this thought about where to invest in the new year is mostly due to our compartmentalization of time into years (and months, weeks, days etc. )!   

Let us anyway reflect on what we need to do from now on to ensure that we are on solid ground where money is concerned, are operating with guard rails, have clarity and peace of mind regarding life/ finances. 

Hence, first let us look at things one should not do to ensure finances are in order.  

First off, when it comes to finances, most think in terms of investments. A product centric view as the primary lens with which to view finances is quite a common problem. People want to invest in products that are doing well at that point or where their colleagues and friends are investing. A good portfolio should be made based on the unique needs of that person and the family rather than trying to include products that are doing well or their friends are investing. This is the first no. 

Secondly investing to save taxes is a baseless and self-defeating exercise. An investment portfolio should be crafted based on goals, risk profile, tenure, income needs, returns etc. and also needs to be tax efficient. If tax saving is also possible as a byproduct, it is fine. 

Thirdly, having a security net and spending money towards it is not a waste of money. Many tend to consider what they pay towards insurance as money down the drain. However, insurance is risk-transfer for a small premium; one understands it’s importance only when a catastrophic event strikes. Life has a way to serve googlies at times – having insurance is that security net.  

Also, having appropriate contingency and liquidity funds is a great practice! Covid helped many understand this! 

Now let us come to a few things we should do with our money. 

We need to have a blueprint or a plan for our life and money. We plan most things in life – birthday parties, outings, marriage, holidays etc. Probably the only place we operate without a plan is when it comes to our finances.  

Money is important – we all agree. We work for it all our lives. Let us get serious about our own money and wealth and have a blueprint with which to work. If we don’t know how to do it, we need to get a professional financial advisor. 

Most of us have multiple financial goals. We need to prioritise the goals, allocate funds and channelise investments towards them. It is very important to work in a planned manner towards goals and achieve them in a premeditated manner. It is equally important to stay within the budgets to ensure that money allocated for one goal ( like retirement ) does not get consumed by another ( like children’s education ). 

Next, we need to shift our focus on controllables like our own expenses, goals and what we put aside every month. This does not sound very inspiring and is probably yawn inducing! However, with investments, the super obvious things are the most ignored.  

Investors focus on asset cycles, markets, fads, interest rates, economy, geopolitical situation and the like, while investing. Many are very worried about geopolitical risks, dedollarisation, a slowing world economy etc. However, all these and many more are uncontrollable factors. There is not much gained by obsessing over these. It is best to stay with the plan, with appropriate tweaks to take into account the changes along the way.  

While investing, one needs to get the asset allocation right. What we invest needs to be appropriate to our personal situation, our goals and when they are coming up, the tenure and income needs, risk propensity etc. Research has suggested that Asset Allocation determines the bulk of the returns in the portfolio, not the specific scheme choices! Hence, the importance of asset allocation cannot be emphasized enough. 

Regular investments is at the heart of creating wealth. Since most people get their incomes on a monthly basis, putting aside a certain pre-decided portion into investments is a sterling idea. After doing the investment, one could spend the rest of the money earned, guilt-free!  

Lastly, have a long-term outlook regarding your investments. That is the only way to build wealth. 

All that I have mentioned till now are evergreen tenets while managing money and investments. That is not going to change with the new year! 

Equity as an asset class may be volatile and many are spooked by it. But, it is one asset that has delivered wealth over decades, much more than any other asset class, including real estate which tends to be a favourite with many investors.  However, with the geopolitical situation and the resultant disruptions, we need to temper the returns from equity in the coming year.  

Similarly, the interest rate cycle has probably peaked and debt MFs with medium to long durations could benefit when interest rates start moving down.  

Also, due to geopolitical risks and dollar instability, Gold may be an asset class that one could consider investing in, with a long-term perspective. The specifics of what should be in the portfolio is best decided based on individual situations. 

Rome was not built in a day, they say. Nor can wealth. We need discipline and determination, patience, ability to stay the course and time on hand to achieve great outcomes – be it building  Rome or wealth!    

The author is the MD & Principal Officer at Ladder7 Wealth Planners Pvt Ltd. Investment Advisory Division. And, he is the author of the book If God was your Financial Planner