When it comes to investing money in the market, it is generally observed that Investors try to emulate the Investment strategies of relatives, friends and colleagues.They believe that an Investment strategy which has worked for his colleague would also work for him. But this could be a cardinal mistake leading to huge losses. One should always remember that one size does not fit for all while investing. One should build a portfolio which is right for him, suiting his long term needs. The following steps can help an Investor in building a portfolio which caters to his own needs and requirements.
The first step should be to have a clear idea about the Investment Objective. The investor should ask himself about the returns required from the investment and the time frame involved. For e.g. the objective could range from buying a house 10 years down the line, or funding educational costs of children.
Once the investment objective has been identified, one needs to chalk out a plan for investment. There are multiple investment options available to an investor at any given point of time like, investing in stocks, mutual funds, fixed deposits, savings schemes, gold, real estate etc. If the investor is not market savvy, mutual funds should be a better option, as they are managed by professional people. Also there are different types of mutual funds which provide different kinds of benefits. For e.g. ELSS scheme provides Tax savings benefit and Systematic Investment Plans provides the option to invest a sum every month. If the investor wishes to have a fixed rate of return (no risk involved) he should go for fixed deposit schemes.
Also the AMC or the Investment House has to be chosen wisely. It should be based upon past performances and relative returns over the market index. Also one should take into consideration the Fund Manager’s reputation and past accomplishments. One should also find out if the Investment House believes in investing in any particular industry or stocks. If yes then the investor should find out the future outlook of such an industry/ company.
After having made the decision one should always make sure to keep a tab on the investments made. He should find out the risk and reward achieved through his investments after regular time periods. This would help him to know whether the investments are actually benefiting him in realizing his objective.
These are some of the basic steps to investing, which adhered to will result in fewer setbacks and a smoother life ahead for an investor.