How can I make my portfolio strong in share market
As a potential investor, you may have opened a demat account and might be ready to invest in the stock market. There are many advantages of investing in the stock market, but before you do so, you must ask yourself - what is your personal finance strategy? Do you have your goals set? What is your investment time horizon? What is the correct asset allocation for you?
Read on for some valuable tips so that your portfolio is set up for maximum gains:
1. Set your financial goals:
It is important to set your financial goals depending on your age, what you want from your life and your responsibilities. These could be buying a house, your children’s education, marriage expenses, retirement, etc. You must also calculate the amount you would need to pay for these financial goals.
2. Figure out your time horizon and risk appetite:
Once your goals are finalised, you can set how many years you have to achieve your financial targets. Based on the time horizon, you can use an SIP calculator to check how much you would need to invest to reach your goal. Note that your risk tolerance will vary depending on the type of goal you set. For instance, your children’s education is a high priority and hence, you would invest that amount in low-risk instruments like debt funds.
3. Asset Allocation:
Based on your goals and time horizon, you can set your asset allocation. This means you must strategically invest in Equity, Debt, and other asset classes in a certain percentage to meet your goals and minimise your risk. Finding the right balance is key here and the help of a professional financial advisor will go a long way.
Assuming you have set the above factors straight, let us see what you can do to sharpen your equity portfolio:
- Diversify, but not too much: Just as putting all your investments in one basket is not advisable, over-diversifying your investments also has its pitfalls. For instance, investing in only 1 mutual fund is risky, but investing in 10 different mutual funds can dilute your investments such that the outperformers don’t get a chance to shine. Finding the right balance (like 4-5 equity mutual funds) can help your portfolio perform better.
- Filter out your biases: Given the volatile nature of equity markets, it can be tricky keeping your mind calm during its ups and downs. Learn about biases such as hindsight bias, sunken cost fallacy, herd bias, and more. This will help you make better investment decisions.
- Educate yourself on various strategies: Read path breaking books such as “The Intelligent Investor” by Benjamin Graham or even simpler books such as “The Little Book That Beats The Market” by Joel Greenblatt. This will give you exposure to different investing approaches and help you sharpen your portfolio.
Conclusion
You can keep the above pointers in mind to achieve your financial goals and sharpen your portfolio to maximise gains. Another factor you must strongly consider is taking the help of a financial advisor in this process. Just like you go to a doctor for help with your physical health, it can be very beneficial to take the help of a financial advisor to better your financial health.
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