Personal Finance - Here’s how you can lighten up your finances this Diwali

Being mindful of your investments coupled with patience and discipline can not only help you brighten up your finance but also augment your riches.

As India achieves the 100-crore vaccination landmark and bourses start firing from all cylinders, this Diwali will surely be the one to remember. As markets continue to scale new highs and add to investors’ wealth, a little planning, coupled with prudent investments, can further lighten your finances during the festival of lights. Let’s find out how you can do so.

Hold on to your investments

There’s an imminent fear that markets may witness a correction in the near term as they appear overheated. This fear may force many investors to take a backseat and exit their investments. However, if you have invested in fundamentally sound stocks and mutual funds, it makes sense to hold on and remain committed to your investments.

Practically, even the most prolific investor can’t predict the ups and downs in the market, and spending time in the market is more essential than timing it. Exit only if you have addressed your goal or there is a drastic change in the fundamentals of the stock or mutual fund, you can contemplate exiting. Equity investments warrant a long-term approach, and a short-term blip shouldn’t deter you.

On the other hand, if you are yet to kick-start your equity investment, it’s the opportune time to do so. Invest in a staggered manner and opt for direct equities only if you can decipher market movements. If not, adopt the mutual fund route and invest via systematic investment plans (SIPs).

Diversify your portfolio

Diversification not only lends stability to your portfolio but also protects the gains from eroding when markets turn turtle. Also, market movements affect different asset classes differently. When you diversify your portfolio, the non-performance of one asset class is made up for by another. A portfolio tilted either towards equity or fixed income doesn’t augur well in the long run.

An equity-heavy portfolio runs the risk of gains evaporating in no time when markets nosedive. On the other hand, a portfolio tilted towards fixed income, more often than not, fails to generate inflation-beating returns. Therefore, it’s crucial to have an even distribution of equities and fixed income instruments in your portfolio to lend it stability and preserve the gains made painstakingly over the years.

Review your portfolio

Diwali is the opportune time to review your portfolio. Get back to the drawing board and closely analyze the performance of different financial instruments. Weed out laggards that haven’t performed well in the long run and replaced them with better performing funds/stocks.

However, before replacing, establish the real cause of underperformance and go ahead only if it is due to poor attributes or calls taken by the fund manager. Also, while reviewing the portfolio, identify the gaps and plug them at the earliest. This will ensure you are on a solid financial footing and can ride choppy waters with ease.

Avoid herd mentality

Valuations of many fundamentally weak stocks may have gained from the current market rally, resulting in investors chasing them. However, investing in such stocks can result in capital erosion and cause significant heartburn later.

Therefore, you must not blindly chase stocks or end up investing in them just because your peers are doing so. Factor in your goals, risk tolerance, and investment horizon, among others, and be rational in your decisions.

Summing it up

Being mindful of your investments coupled with patience and discipline can not only help you brighten up your finance but also augment your riches. It will also help you address your life goals and ensure you are well and truly on your path to financial freedom.

Source : Money Control back