To effectively undertake investment planning and wealth management on your own, means playing a role as a self-directed adviser as well as a client, one must follow these comprehensive steps:
Assess Your Financial Landscape and Understand Yourself: Begin by comprehensively evaluating your present financial state. This involves collecting data about you & your current financial situation, including income, expenses, assets, liabilities, cashflows and existing investments. As you know, behaviour has a significant impact on investment life, so assessing your own money & investment biases is key to success. Hence, understanding investment and money perception, return, and past success/failure will provide a baseline for creating your investment plan. Correctly, my senior partner always mentions, “Investor’s attitude towards money & investment will decide the altitudes of their wealth”.
Set Clear Financial Goals: Define your different goals coming under needs, wants and aspirations with a defined timeline like short-term, long term and very long-term financial objectives. These could include retirement savings, buying a home, funding education, building an emergency fund, and achieving a certain level of financial independence. All these require review & rationalisation with time and situation changes. Periodically reassess your financial goals and adjust your investment plan as your circumstances change.
Determine Risk Profile: Understanding yourself from Risk Tolerance, Risk Required and Risk Capacity makes all the difference as that is the reason there is so much gap between Investor Return and Investment Return. This will help to choose the right investment vehicle for your journey & influence your investment return.
Create a Budget Framework: Construct a budget framework that meticulously outlines your income, expenses, Investment & savings aspirations. This framework serves as the foundation for allocating funds towards your investment initiatives and wealth-building endeavours. Remember, your financial equation can be expressed as either Income – Expenditure = Saving/Investment or Income – Saving/Investment = Expenditure, depending on your perspective.
Educate Yourself and Track Key Variables: Enrich Your Understanding and Monitor Essential Metrics, means engaging in the exploration of diverse investment avenues, asset categories, and strategic investment methodologies, searching for the value in different pockets of the investment arena and prevailing market & economic trends. This acquired knowledge will empower you to make judicious and well-informed decisions. This is a continuous work, not a one-time activity.
Build an Investment Plan & Framework: Develop a detailed investment plan that includes:
Asset allocation strategy: Decide how much of your portfolio will be allocated to different asset classes (stocks, bonds, gold, real estate, etc.).
Investment selection process: Choose specific investments within each asset class based on your research and goals.
Diversification: Spread your investments to reduce risk.
Rebalancing strategy: Determine when and how often you’ll adjust your portfolio to maintain your desired asset allocation.
Implement Your Plan: Put Your Plan into Action. Often, we come across numerous ideas and plans, but success hinges on our ability to execute them effectively. Open different accounts like mutual funds, brokerage/depository, retirement, PMS/AIF accounts etc. Start investing based on your investment plan and framework with conviction.
Monitor and Review: Consistently assess the performance of your financial plan and portfolio. Periodically rebalance your portfolio by considering factors such as asset valuation, your objectives and the timeframe, especially if your asset allocation significantly deviates from your predefined target percentages.
Tax Considerations: Be aware of tax implications related to your investments. Utilize tax-advantaged accounts and strategies to minimize taxes.
Protection and Insurance: Insurance is a fundamental risk management tool that safeguards against the potential loss of economic benefits derived from various assets, whether physical or human. It shields these assets from unforeseen events that could curtail their ability to generate benefits, leading to financial consequences. By indemnifying against such risks, insurance ensures stability in household income, preventing disruptions caused by unexpected charges or income reduction. Comparatively, insurance takes precedence over investments.
Investing is a Journey, Think Long-Term: Approach investment planning and management as a marathon rather than a sprint. Cultivate a mindset that prioritizes long-term perspective and resists the temptation to make impulsive decisions driven by short-term market fluctuations.
Reporting & Documentation Is Everything: Smart reporting & maintaining records of your investment decisions, reconciling of the transactions, and any changes you make to your plan. This documentation will help you track progress and maintain clarity.
Stay Disciplined & Consistent: History shows that all successful people in any sphere have discipline and consistency in approach. Most of us know, getting up early and exercising is good for health, but very few can implement it, the same analogy applies to wealth also. Adhere to your investment plan and avoid making emotional decisions in response to market fluctuations or your situation.
Keep in mind that self-directed wealth management and investment planning demand unwavering commitment, continuous learning, and discipline. As you assume the responsibilities of both a wealth manager and investment advisor for yourself, the pursuit of knowledge and unwavering dedication to your objectives will serve as your guiding compass along your financial journey.
PLEASE NOTE, THE ABOVE ARTICLE IS FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT, TAXATION AND/OR LEGAL ADVICE. OPINION EXPRESSED OVER HERE IS PUERLY PERSONAL.
MintBox Advisory LLP is a SEBI Registered Investment Adviser (RIA) & AMFI Registered Mutual Fund Distributor (MFD).
Disclaimer: Mutual fund investments or Investments in securities market are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns. Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
