What are the 5 best ways to manage investments today?

Warren Buffet said, “Investing is simple, but not easy”. To ease your investment journey read on the best ways to manage investments. Managing investing is listed as the most complicated part of managing personal finances. You could have the following questions;

When is a good time to invest?

Which investment will give the desired rate of return?

What asset allocation should I follow?

I you have the above questions bothering you, don’t worry. These are the most common dilemmas that investors have and the below are few best ways to manage investments better;

The Best Ways to Manage Investments

Stay humble – Accept that no one knows what will happen in the short time

Study after study has proved that trying to time the market consistently is very difficult. We individuals or investment managers are able to beat the market consistently over long periods of time. It might be extremely difficult to ignore what is happening in the short run, but you are better of by aligning your investments to your goals and not the market events.

Understand your risk profile

Your risk profile should assess three important parameters for you. First – Your financial stability; how well you can handle financial shocks and continue to lead your day to day life. Second – Your emotional behaviour towards money and different situations and Third – Understanding the need to invest and the required rate of return to meet your goals.

Follow ideal asset allocation

The ideal asset allocation that matches your risk profile will help you understand how much you can invest in equities, fixed income instruments or real estate. Being able to sleep well at night by completely understanding why your portfolio was constructed in a particular way is a great relief. Following a dynamic asset allocation strategy that aligns with your risk profile has multiple benefit. Read here to understand the magic of dynamic asset allocation.

Having Financial Hygiene

Before talking about best ways to manage investments, one has to ensure that their basic financial hygiene is in place. Knowing that you have covered the below aspects of finance gives a boost to your finances;

  • Adequate emergency corpus to cover 9–12 months of basic mandatory expenses
  • EMIs under control and not exceeding 25% – 35% of your family’s net income
  • Adequate medical and critical illness cover
  • A good savings and investment ratio ensures that you are planning for your future

Follow a Financial Plan

A driver who doesn’t know his destination, I sure to reach no man’s land. Having a financial plan will help you understand your prioritize your goals and allocate available resources judiciously. It helps tremendously to work with a fee only financial planner to have your finances sorted and give you direction. A SEBI Registered Investment Adviser will help you achieve the above mentioned financial hygiene.

A financial planner will help you stick to a plan and ensure that you follow the desired asset allocation. A proper monitoring and re-balancing mechanism will help you take corrective action and re-align your investments to risk profile and ideal asset allocation. This is help you book some profits if your equity investments have rallied or will guide you to invest more if there was a stock market correction leading to reduction in equity exposure. Such timely action helps you take advantage of market swings and get better returns in the long run.

financial plan will build in What-If scenarios and help you take action if things change. Financial plans help you give direction to your money. The reality is often different and you need to be better prepared for different scenarios;

  1. What will you do if the stock market crashes – Do you have adequate surplus or liquidity to invest and take advantage of the volatility.
  2. What if the stock market rallies – Have you looked at your asset allocation? Is your equity allocation now greater than ideal. Booking profits and sitting on the sidelines is more difficult.
  3. Unexpected emergencies – Losing your job, death of the earning member etc can derail your family finances if you are not prepare well.

Among the best ways to manage investments the most significant is to do Simple things consistently. This will help you manage your investments and achieve your financial goals.

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