Be flexible with investments

While there is a debate on what and how wealth is to be perceived, personally I believe that wealth could be measured in the optionality it provides. It might look difficult to decide how much one should accumulate for a peaceful and comfortable retirement or what should be the ideal lifestyle to adhere to during accumulation and distribution phase; one important criterion it should meet is that it should provide an option. An option or choice to continue to live in a desired way, the independence to do what one wants or even how one wants and how long one wants should be the crux of wealth creation.

While I've just outlined about the freedom that wealth should provide, there's another important cog of how one would take the investment strategy to achieve this. It's proven beyond doubt that one should build a portfolio that reflects their risk appetite and goal durations, it can't turn into a prison. The investment philosophy should be flexible and should provide breathing space so that it helps to live and enjoy life all along seeking to achieve the long-term goals.

As I'd just mentioned about the prominence of duration i.e., timelines in creating a portfolio, one should also realize that they can't force themselves in reaching them quickly. This is where the other part of the cog could be traded-off most times - risk. In a rush to reap gains quickly, one could sidestep or deviate the risk appetite by opting for avenues that mayn't suit or sync and thus could upset the entire planning. The fear of missing out (FOMO) plays out at extreme events in the markets and it's at those times that one needs to be better aware of their risk tolerances to avoid any missteps. One has to remember that investing is not a popularity contest and just because a vast majority of participants agree or disagree ensures us a win or loss.

Volatility is an underlying feature of equity markets that every investor has to acknowledge and live with it. Price movements are the manifestations of the larger participants' fear or greed, but value is what one perceives it. The price at which one investor feels overvalued and so divests from portfolio could be perceived as undervalued for another investor's entry price who decides to add to their portfolios. This duality of value and price is what makes the equity markets dynamic where the price deviates constantly from an instrument's intrinsic value.

The only possible counterbalance to risk in equity markets could be time, the time spent in the market. The power of compounding is most times misunderstood to the returns, but it actually lies in the number of years i.e., the duration and thus the time spent in the investment, always. In the shorter paly, the experience of investing could resemble more akin to a rollercoaster ride than one on a highway. The stretched periods always offer a smoother ride and to enjoy that one needs to do nothing, yes most of the times remaining inactive or unresponsive is the only way we could give time for investing.

The success or quality of an investment strategy would only be known post its survival of a disaster or an event that otherwise could've had a devasting impact on one's wealth. No amount of back-testing or scenario analysis would help but could give us an impression of how it responds, though only to a small extent. Past year has been a tumultuous one for not just investing but general life as well. We were confined to our homes with bare essentials for a few months and life was never reverted as restrictions eased. The comprehension of investing and wealth has undergone a profound change not because that one had to experience these not so amusing things but through other's experiences.

It's the freedom one's money or wealth offers that beats even the large quantum of money that's amassed. This choice of liberty is less perceptible and intangible but provides an immense antidote at times of turmoil like that we're experiencing. One has to ensure that their portfolios apprehend their emotive and psychological self while they remain rational to their portfolios. A bit of an oxymoron but that's the way investing is.

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