Alpha
- There exists a process that can deliver good returns but one cannot completely foresee or control it. Yet, implementing this process is worth the risk since it not only rewards the tolerant but also helps build resilience towards uncertainty.
- Once you’ve set aside savings to tend to your liquidity and stabilized your financial portfolio with fixed income/debt allocations, the residual money should be channelized towards investments. Savings and investments are defined by the impact of overrun in prices for goods and services (Inflation). Instruments in fluid and core portfolios are merely savings (yield less than inflation %). With an alpha portfolio, you choose to invest (earn more than inflation %) whereby you invariably make “time” your strongest ally. And time, indomitably holds the superpower to transform little into significant.
- Assets both movable and immovable appreciate over time. But only a few of them compound significantly to counter the eroding purchasing power of money (Inflation). Properties (Real estate) and businesses (Equity) are two popular mediums for generating value (i.e., wealth) overtime. Notably, between the two, investments in movable assets like equities offers quicker liquidity, easier divisibility, and higher tax benefits. There’re no shortcuts to pick a stock and the decision to buy into the future of a business is never an easy one. Yet, the benefits of investing in equity (be it stocks or mutual funds, Portfolio Management Services (PMS) or Start-up investing) far outweighs the comforts offered from conventional savings.
- Long-term investment process through rupee-cost averaging strategy is highly beneficial and yields desirable returns across many investment portfolios. It aligns with most investment personality types, aids in improved management of investment-related emotions, and, most importantly, when strategically and tactically executed, it can lead to desired financial outcomes within intended timelines. Accepting uncertainty comes with costs, but the benefits of the process far outweigh its challenges.
- A few pointers before building a growth-oriented financial portfolio;
- Equity investing is all about dealing with the unknown. Make yourself more resilient towards uncertainty… by staying invested in equity (both at good and bad times).
- Investment choices and allocations should combine simplicity with strategy. Simplicity is attainable by choosing open-ended investment mandates that offer in-built diversification among available portfolio options. A strategic approach involves identifying investment instruments that align with your needs, allowing for systematic deployment of surplus money. Conversely, a tactical portfolio or allocation may enhance returns, but it requires closer supervision & is generally exposed to higher volatility.
- There’s no such thing as promising investment with the least risk. So, shoot for the average since it’s realistic and does the job. A diversified investment portfolio delivers average returns that is still higher than the rate of inflation.
- Select investment instruments based on their potential to perform over long time-frames. This can be ascertained through the investment mandates and portfolio disclosures.
- Review and rebalance investments based on changing needs over the course of your life. Above average returns come with above average volatility. Prioritize minimization of undue volatility over maximization of returns.
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