A New Era of Do it Yourself Investing – Count Your Risks & Rewards
- December 7, 2020
- Posted by: user
- Category: Smart Trading
The accessibility to digital platforms has made investing in securities, funds, stocks, and bonds easy for everyone, specially the millennials. Becoming your own financial planner has its perks, but this new era of do it yourself investing demands some research and strategy. Before you start counting your eggs in different baskets, we highly recommend that you do a quick calculation of the risks and rewards. This will tell you whether this do it yourself approach is your cup of tea.
You are tech-savvy, and you want to take full control over your financial future, and most importantly you have a process in mind. You are the right fit for diy investment. But stop before you take the leap! Remember, that there’s no rule book that will tell you everything or increase your chances of success, so measure each step carefully.
As you type the word ‘diy investment’ in your mobile, you’ll have 20-30 options with a few having a 5-star rating. Pick the one that suits your requirement, fill in the required details and you can start. The KYC process is easy, as physical verification will take some time. The process seems simple enough, but the catch is figuring out your requirements.
Let’s say that you’ve done your research and you know the equity funds which are best suited for your needs. When you search for the equity funds, there will be quite a few on the list. Most of these will be listed based on the performance of the last 3 years. But this information will not be enough.
Your research will also lead you to the best-performing funds which are mostly US Opportunity or technology-oriented funds. Although these are the right choices in theory, they are mostly not suitable for first-time investors. They cater to a particular segment and narrow down your choice in portfolio selection. Your returns will also largely depend on whether that segment is doing well or not.
The potential volatility of a particular segment can be too much for a first-time investor. What do you do in such a situation?
For a first-time investor, we urge to take an optimal risk approach while investing. This means, you need to find ways to minimize your risks for returns or do the vice versa i.e. maximize the returns for given risks. But assessing risk is not easy, as you need to do a calculation on your risk appetite. Your risk appetite will depend on factors like age, income, your potential to save, liabilities, nature of your job, and market volatility. Your risk tolerance capabilities will be determined by all these factors. But you as you focus on each step, you can control the risks associated with it.
Once the risk is sorted, you need to balance the debt and equity ratio. That’s when you start to build on your portfolio. In this new era of do it yourself investing, you must be extra cautious about the various asset classes. In the early stages, your equity component can be higher as you need the power of compounding work in your favor. As you grow older, you need to bring the safety of debt in the portfolio.
Equity can build more wealth in the long run but can be risky in the short run. Debt has a low risk scale and is more stable in terms of returns and predictability. The capacity to generate returns in limited in case of debt. Choose your assets carefully based on your needs and the time in hand.
Here are a few things to avoid if you are a new player in the new era of do it yourself investing.
- You can’t have any unrealistic expectations. There’s no magic in it. In some years, you may expect a 15% annual return on any investment, but there are years where you may face a negative return.
- Most equity funds deliver inflation and returns. You can’t expect higher returns in equity when economy is slow.
- For most of the returns, you need to ensure a business cycle of 7 to 15 years.
- Mutual funds are known for their consistent performance; do it yourself investing gets easy with funds. But there can be some financial damage with poor fund performance. Diversify your fund portfolio as much as possible.
- Make good choices for do it yourself stock investing; if you are not sure, ask for help. There’s a problem with plenty, because everything seems to be lucrative and good. You can seek help from a Robo advisor before making an investment in online platforms. Instead of making uninformed choices, you can narrow down on your options depending on your financial goal.
Redefine the concept of risk management in this new era of do it yourself investing. You can’t avoid losses, but you can take chances to mitigate the risk quotient and the negative fallout with safe bets. The idea is to accept a permissible amount of loss to enable high returns.
Keep on reviewing your portfolio, don’t get swayed by personal attachments. Human element corrupts the DIY portfolio. Make a detached and objective decision to prune your losses. Millennials can afford to be at a high-risk zone because they have time at their disposal, but the idea is to create a long-term strategic position and invest in segments which will build your wealth and not give you mere short-term returns.
[vc_row full_width=”” parallax=”” parallax_image=””][vc_column width=”1/1″][vc_widget_sidebar sidebar_id=”default”][/vc_column][/vc_row]