What investment strategy has the highest return - Motilal Oswal

Top Investment Strategies to Make You a Star Investor

Every seasoned investor today was, at one point, a beginner. But what helped them become more experienced was not luck or access to premium facilities. Rather, it was a deeper understanding of the many investment strategies available, and a solid plan that involved using the right strategies. 

So, if you are just getting started with your investment journey, it is important to first take some time out to study the different strategies for investing your money. You can then adopt the techniques that work best for your financial situation and your life goals. 

Top investment strategies to become a better investor. 

1. Practice goal-based investing

Goal-based investing is a strategy where you invest in the investment options that are well poised to satisfy your goals. Your goals may either be serious like your child’s education or frivolous like a vacation. Once you’ve identified what your goals are, the next step is to choose the right investment option. 

For instance, if saving up for a car is your ultimate goal, you could choose to invest in mutual funds online that provide a mix of both equity and debt. Goal-based investing not only gives you clarity, but also ensures that you invest in the right options.

2. Start an SIP online

When it comes to long-term wealth creation, the stock market is one of the best investment avenues. That said, since you’re in it for the long-run, investing a lump sum amount into the equity market is inadvisable. 

Instead, you could start an SIP online. A Systematic Investment Plan (SIP) is an investment method where you make small contributions regularly over a period of time. These contributions that you make are invested in stocks or mutual funds of your choice.  

An SIP has significant advantages such as customizability, rupee cost averaging, compounding of returns, and higher return generating potential. 

3. Diversify your portfolio

You must have probably heard of the age-old adage ‘Don’t put all your eggs in one basket’, haven’t you? Portfolio diversification also works on that line of thought. When you invest all your money in one or a couple of stocks, the chances of your investment capital eroding during a market downturn are high. 

That’s why it is important to diversify your portfolio. Instead of investing your entire capital in one or a couple of stocks, you could choose to invest in a basket of stocks from various sectors and industries. Doing so will spread your risk out and reduce the chances of all of your stocks underperforming during a market downturn. 

4. Invest only in what you understand

This is another one of the most important investment strategies that you must absolutely follow. Before investing in a company, you should always try to understand its business model first. And if you don’t understand the business model of the company, it is advisable to stay away from investing in the company altogether. 

One of the many reasons for this line of thought is that you would be better poised to evaluate the company’s performance and future growth potential only if you’re able to understand its business. Investing in a company with radical business models that you don’t understand can be very dangerous and can even lead you to lose your investment capital.   

5. Rebalance your portfolio when needed

When you create your own portfolio, you would have had a certain mix of investments. For instance, depending on your goals, you might have created a portfolio where your asset allocation is 40% equity, 50% debt, and 10% fixed income instruments. Now, as time passes, the values of your assets will also encounter a change. 

This will ultimately lead to an imbalance in your portfolio, which is not ideal as far as being able to satisfy your goals are concerned. This is why it is important to monitor and rebalance your portfolio regularly. For instance, if you see that your portfolio has skewed in favor of equity more than debt, you could sell off a part of your equity investments and invest them in debt to maintain the appropriate asset allocation. 

6. Build a retirement fund 

The post-retirement phase is one of the most crucial parts of your life. Here’s where you lose out on your main source of income, leaving you to rely on your savings and investments. That’s why it is extremely crucial to put some thought into building a retirement fund early on in your life. 

This way, you can ensure that you have enough funds to live a comfortable post-retirement life without having to depend on other individuals or your children. The ideal way to go about building a retirement fund is by investing in retirement schemes such as deferred annuity plans, National Pension System (NPS), Public Provident Funds (PPF), or maybe even long-term equity funds. 

7. Automate your investments

There’s a popular saying that goes like ‘If you have to do everything by yourself, you’re not doing it right’. This is also applicable in the realm of investing as well. Although it is important that you keep a close watch on your investments, you should ideally look towards automating your investments. 

This will ensure that you continue to earn returns on your investment without having to actively manage them. Opting to open an SIP, investing in passive or index funds, investing in a ULIP, and using the Electronic Clearance System (ECS) of your bank account to automatically transfer funds to your investments are a few ways through which you can achieve automation. 

Conclusion

The strategies outlined above can help you ace the investment game. Keep in mind, however, that not all of them may be applicable to you. For instance, if you are an aggressive investor, you may find it useful to start an SIP online and invest in the stock market. But if you are a more conservative investor, you may want to invest in debt mutual funds online. 

However, irrespective of what kind of mutual funds you choose, you need to open a demat account to participate in the markets. Motilal Oswal can help you open your account quickly, in a hassle-free manner. 

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