Thanks for joining me in this podcast. Today, I am going to be speaking on the topic “Investing is a Continuous Process”.
Have you come across this phrase – “Rome was not built in a day”? What does this phrase mean? People typically use this phrase to remind someone of the time needed to create something great. While it does take time, everything cannot be attributed to just time. Work must be done on the way there. To complete this phrase, “Rome was not built in a day, but they were laying bricks every hour.”
This connects back to our topic – “Investing is a Continuous Process”. Each person’s investment objective and financial situation are different. In fact, one person’s investment goals and financial situation itself changes as they progress through different stages of their life. This urges for a few points to reviewed and re-worked on a continual level as you progress through your investment journey:
- Risk Profile – Understanding your risk profile as an investor is a primary point that many investors ignore. Two people with a similar financial background can have very different risk profiles from their past financial experiences, age and cashflows. And, over the course of your life cycle, your risk profile tends to change as your income changes or newer investment experiences. You must restructure your investments based on the changed risk score and appetite. What worked for you when you were in your 30s might not necessarily work when you are in your 50s.
- Asset Allocation – An effective asset allocation should be gauged and altered based on your investment objective, the horizon of investment and current financial situation. For example, a retirement corpus fully invested in equity instruments might not serve the purpose of a monthly payout requirement. By diversifying one part of the corpus across debt instruments for monthly payouts and another part of the portfolio in equity instruments for capital appreciation could work better. Similarly, there will be many situations that will call to review your asset allocation and re-align it over the course of your journey.
- Market Analysis – Analysis of the market on a timely basis is necessary to get valuable insights into the shifts in the economy, ongoing market trends and most importantly, what to avoid. With the constantly changing market context, understanding potential investments, and validating the thesis of your existing investments is crucial.
- Strategy of Investment – After you have chosen an investment, knowing when and how to build this investment is essential. The present market context should be assessed before concluding the strategy of investment.
Summarizing the four points:
- Risk Profile
- Asset Allocation
- Market Analysis
- Strategy of Investment
While the initial process to select and structure your investments is important, keeping a watch over these points on a timely basis decides how you go through the rest of the investment journey and reach your goals.
Stay tuned for similar podcasts on improving your investment journey.