Balancing investment portfolio key

The good investing workbook contains small measures of improvement, deriving a plan, sticking to a routine, being flexible, bouts of moderation and keeping balanced views

These days with the advent of social media, it's very hard for us to remain concentrated and disconnected. While it's great to remain connected most of the time, if not all the time, it also brings in loads of distraction to our mundane living. It becomes extremely difficult when you are part of a social network which talks about investing ideas and even sharing their experiences. It's a two-edged sword as both their positive and negative responses only firm up our biases further, rarely helping to ease their influence on us.

While there's no secret for success in investing, reams of paper are dedicated on how our mentality makes the cut for investing or how our psychology or behaviour impacts our investing results. Like prescribing for good health, the good investing workbook contains small measures of improvement, deriving a plan, sticking to a routine, being flexible, bouts of moderation and keeping balanced views. Most of good health advice is either boring or tasteless. Same is the case with good investing advice.

The past one year has been a trying one for most of the humanity with the pandemic raging across the world, imposition of lockdowns, grinding down economic activity, hospitalisation, much more, losing loved ones but the asset markets have been on a marvellous ride with no parallel from the past. Doubts were cast on how we approached investing and while we constantly were questioned about our assumptions, estimations of our future, the markets defied every parameter of the past.

At such times, when we see a post or message from our social network on how one has made phenomenal returns through investing in a particular avenue, it would dishearten us for not having taken such an exposure. At these instances, we're very much tempted to make changes to our investment strategy to accommodate these avenues which found success in others. It'll be gruelling especially when the outperformance continues as we remain contemplating on the execution.

When you're stuck in a traffic jam, you see cyclists peddling their way out of the jam and moving ahead of you. Would you not then like to junk the car off and get on a bike to your destination? But your larger sense prevails over your initial enticement as you understand the limitations of a bike to your context. Even in investing, there would be multiple such instances when we're tempted to discard our philosophy or style to get on to a new fad to ride the short-term profits. While stating that, I'm not suggesting remaining dogmatic in our investment strategy and lose out on making money.

So, how do we bring the balance, particularly when the returns are exponential and too tempting to stay side lines, like in cryptos. One critical aspect of investment to be considered is the kind of avenue chosen i.e., one must understand what the investment is based on, how it's structured and top of all is the possible risks involved.

One should be clear on why one is investing and to what extent one could take the hit or risk of losing the invested money. Alternatively, one could have a bucket for such speculation and live with peace. There's nothing wrong in playing part of the money that's purely ticked as speculation if one is aware of the consequences of it and to what extent it would affect their portfolio or wealth. It's when the continued outstanding returns gives fear into greed is when the trouble begins.

The biggest key to success hence has been minding the 'mind' part of the investment. All investments are rational i.e., they're built on certain premises which could be rationally explained but most investment decisions are emotional. So, when making investment decisions one needs to see how a particular investment would serve the investor's objective. At all times, the only true measure of benchmark should be the goal and how an avenue performed against it. That allows us to stay rationale in why we chose an investment and how we evaluate its performance.

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at knk@wealocity.com)