HOW CAN YOU PROTECT YOUR INVESTED MONEY IN THE LONG-TERM?
You cannot, never ever control market volatility. You cannot control the flow of the market, you cannot control the ups and downs of the market. No one has a control over it.
Hence, the best way to protect your invested money in the long-term is by focusing on the factors that you can control.
What are those factors that you can control? Here you go! You can control your reactions to market’s downturns, say yes or no.
You can control how much of your income you’re spending and how much you are actually saving, say yes or no.
You can control your asset allocation, through which you can create a diversified investment portfolio, thereby reducing the risk on your invested money, say yes or no.
Market downturn is one of the biggest reasons you should be extra vigilant for shorter-term investment goals — like saving for a lavish car, saving for buying a dream home or saving for child education. Although your risk tolerance is high, you cannot afford the chance of a market drop. It is thus, advisable to diversify your portfolio, have a balance of equity funds and bonds as well.
Because, if you have invested only in equities and if four of the next five years are down years, you might be in trouble and stand a chance to miss your financial goal. If your financial goal for the next five years is vital, don’t risk it. Invest in safer funds, or fixed deposits, or bonds etc.
As far as long-term financial goals are concerned, whether it’s retirement planning, a decade-away purchase of a house, higher education for a child, these two principles can help you protect your invested money.
However, you need to invest in equities for long-term –
It’s never ideal to put all your eggs in one basket. Hence, diversify your portfolio. This will reduce the risk of your invested money. While you invest in equities, always remember – companies may go out of business, industries may face years-long downturns, and countries might enter periods of economic and political instability.
The more diversified assets you have in your portfolio, the better you will be able to balance risk and reward.
KEEP YOUR INVESTMENT PSYCHOLOGY IN CHECK
The inevitable fact is you can’t really control the market downturns or trends, no one can, but you can definitely control how you react to these market odds. Market downturns, news headlines, and impulsive behaviour of the investors might prompt you to sell when it’s actually time to buy, and vice versa. That’s the reason why you need to have an expert by your side, especially when you plan to invest for long-term.
The me-too behaviour for investing in equities might be really destructive. If you buy when everybody is buying and sell when everyone is selling, you’ll do really badly with your investments.
In short, the best path to money multiplication is to first learn your purpose of investment, identify your risk tolerance, learn what you can and then relax. Never forget to keep it as simple as possible.