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8 steps to successful investing

via Economic Times: Fear – it is an emotion ruling the minds of most investors, especially equity mutual fund investors, these days. Thanks to a bleeding stock market, investors have suddenly woken up to the dangers of the investing in stocks or equity mutual funds. It is very common to come across queries like ‘should I sell my investments; should I stop my SIPs; should I wait for the market to stabilize…’

Babu Krishnamoorthy, Chief Sherpa at Finsherpa Investment Services, believes the best way to tackle fear in investing is through educating yourself about investing. “Knowledge is power,” said Krishnamoorthy. He was speaking at ET Wealth Investment Workshop held at Chennai on 25 October.

As you can see, most of the queries listed above stem from lack of proper knowledge about investing. For example, most successful investors know that a correction in the market is a great opportunity to go for bottom hunting or picking stocks with attractive valuations. Similarly, every long-term investor knows that a bad phase in the market is the best time to accumulate stocks to create long-term wealth.

Running away from the market or stopping investments during a bad phase would actually rob you of a chance to create wealth in the long run. For example, an SIP during a volatile phase would help you buy more units. On the contrary, you would happily continue with your SIP during a bull market, never mind you would buy lesser units during an upward trend in the market. That is why continuing with your SIP is extremely important to average your purchase cost and maximise returns. Such basic knowledge would indeed go a long way in reassuring investors.

Investors can also guard themselves better if they do a proper financial planning before investing, says Krishnamoorthy. He believes a few basic questions would help investors to invest better and take care of their fear of investing. These questions are: What are my goals; how much money do I need and when; how much risk can I take; where should I invest.

1.Create and follow a financial plan
2.Diversify among various assets (as per your temperament)
3.Invest and stay invested as per your financial tenure
4.Avoid trying to time the equity markets
5.Ignore stock market volatility, emotions, get rich tips…
6.Look for long term compounding effect
7.Keep realistic expectations while investing
8.Periodically review, and re-balance if necessary

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