Investors, whether DIY or otherwise, tend to get carried away by market volatility and headlines related to developments around the world. Based on this, investors tend to make hasty buying and selling decisions, both beginners and experienced.
When it comes to investing, every investor wants to have absolute control over their investments. Experts say of late that this control has largely emerged in the form of DIY investment.
What often goes unnoticed, however, is the impact that behavioral biases have on an investor’s decision-making process.
Chintan Haria, Head – Product Development and Strategy, ICICI Prudential AMC, said: “Investors, whether DIYers or otherwise, are guided by market volatility and headlines related to developments around the world. of these, investors tend to make hasty buying and selling decisions, both beginners and experienced.”
More often than not, such decisions are often wrong. And in the long run, experts say that multiple such actions could negatively impact a person’s overall portfolio and ability to generate returns.
“Since we invest to generate consistent returns over a long period of time, it is very necessary to ignore the charm of quick returns over shorter time periods and stay invested during volatile times rather than rushing to turn the notional loss into a permanent loss change,” explains Haria. † This is another aspect that a DIY investor should be careful about.
Another aspect that experts say a DIY investor should be aware of is the urge to go overboard in a better-performing asset class. For example, Haria explains that in the past two years, when Indian stocks had a great run, investors would have found it very difficult to make gains in equities and allocate them to different asset classes. But historical data shows time and again that having a balanced portfolio triumphs in the long run.
Thus, by spreading investments across different asset classes, there is a built-in risk mitigation system built into the portfolio.
So if you are a DIY investor and want to avoid these pitfalls, according to experts, one of the easiest ways to do that is to enlist the help of a professional by investing in a passively managed multi-asset fund.
In doing so, the fund manager will actively switch between asset classes through instruments that are passive in nature. For example, in the case of a Multi-Asset Fund, which allocates 25 to 65 percent to domestic equity ETFs and index funds, 25 to 65 percent to debt ETFs and index funds, 0 percent to 15 percent cents to Gold ETFs, and 10 to 30 percent % of Global Equity ETFs, an investor gains access to a variety of asset classes within a single fund at a very nominal cost.
Haria added: “Because the fund is invested in multiple asset classes that have very low correlation, it provides much-needed stability through optimal diversification. It also prevents an investor from timing the market.” Here the fund manager, on behalf of the investor, constantly rebalances the asset allocation based on various parameters such as market valuation, triggers, etc.
In addition, there is also an element of geographic diversification due to exposure to international equities. For example, in the case of a multi-asset fund scheme, an investor has exposure to international ETFs that focus on technology, aerospace/defense, biotechnology, agribusiness, etc.
Haria notes: “Within domestic equities, the fund manager has the flexibility here to choose sectors/themes and divide between large, mid or small caps to generate alpha. With no tax implications for rebalancing and professional expertise for investments in domestic equities. and global markets, the scheme is emerging as an all-in-one low-cost investment solution, making it a win-win for investors as it provides better risk-adjusted returns.”
So if you are looking for an ideal solution to multiple problems such as selection, size, timing and taxation, and is as simple as investing yourself, a passive multi-asset fund can be an optimal solution.
This post Things to watch out for when DIY investing was original published at “https://www.financialexpress.com/money/things-to-be-mindful-of-while-diy-investing/2468243/”