Investing your money helps you beat inflation and achieve your financial goals faster. We usually analyse investment decisions through the lens of risk & return only, but there is more to our investment journey. Though it is difficult to quantify, one of the big life goals for any individual is ‘peace of mind’ and your investments should not disturb your peace by creating too many emotional ups & downs in life.
The question is how to achieve peace, while still achieving good returns on your investments. If your investments require frequent monitoring or cause you sleepless nights because they are too volatile, you are not headed in the right direction.
One way to achieve this is to make your investment journey ‘boring’. For example, you buy and hold your investments and ignore all the ups and downs in the market. An investment in a NIFTY 50 index fund has generated positive returns if held for more than 6 years in any period since its inception. But very few people have the temperament to hold on to their investments when they are falling and hence, they may sell as soon as they see a loss.
Another approach could be to deliberately own only very few, highly-diversified investments like mutual funds or ETFs and avoid investing in single stocks. Such a portfolio will increase in value slower than a single stock but will also protect you much better in case of a market fall and help you stay invested.
To achieve lasting peace in your investment journey, you need a change in mindset & expectations from your investments.
There are a number of historical studies that clearly prove that active investments in stocks or frequent changes in your portfolio based on your opinion of market direction do not work well for most retail investors. If you understand and accept this, you will stop trying to ‘time the market’ and rely more on ‘time in the market’.
Once you develop a long-term mindset with respect to your investments, you will find it easier to rise above week-to-week fluctuations. Most investments in the real world (like actual operating businesses) take many years, if not decades to become valuable. Why should we expect the stock market to be any different? In the words of Warren Buffet, ‘only buy something that you’d be perfectly happy to hold if the market shut down for 10 years’. To do this, you would need to also do a lot more research before you make an investment.
Taking the help from a financial advisor or using an app that provide financial guidance will help you construct a well-diversified portfolio matched to your risk profile and goals, so that you don’t need to spend much time monitoring your portfolio frequently.
If you still want excitement in your portfolio, set aside a small portion of your portfolio like 5-10% and enjoy trading in stocks and risky experimental ideas. This way, your overall returns and your financial goals will not be impacted even if you perform poorly in this risky portion of your portfolio.
