Losing money and the mind


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The show, Man vs Wild, runs on Discovery Channel and is apparently quite popular.

The general format of each episode is the premise that Grylls (the show’s host) is left stranded in a region with his film crew. The episode documents his efforts to survive and find a way back to civilization, usually requiring an overnight shelter of some kind. Mostly there are wild terrains – jungles, forests or similar non-urban areas. (Source: Wikipedia)

It’s a Jungle out there!

The show is filmed, after a lot of preparation and that is the reason it continues to on air, for years now.

A similar show for investors can be Man vs Markets.

Most investors don’t realise that it is a jungle out there and they don’t prepare. They jump into the investment jungle and run for their lives at the first sign of distress.

What does it feel like to be in the investment jungle? A few words for you – Uncertainty, chaos, toxic products, slimy sales people, fees, taxes…(keep adding).

That’s exactly what is happening now.

The markets have gone into a tailspin. Everyone has got a reason – the budget, the slowdown, the government, trade war, foreign countries (yeah, add some of your own).

No one blames oneself!

The most worried are the mid and small cap investors, who put in their money about 2 years ago and still looking at a value lower than the original investment.

They have no idea what they have got into. The only reason they invested is because they saw a shiny double digit number, which could make their dreams come true right away.

The reality stings. The investors are hankering for cover now. Stopping SIPs, redeeming existing investment and vowing never to touch them again.

That is exactly how you fall prey to the ‘investment’ jungle. They are losing money and their minds.

More often than not, your behaviour counts a lot. How do you stand up to any challenge / adverse situation? Do you allow it to break you or expand the horizons of your mind?

However, you need to prepare to be able to respond positively.

As for our investor who is stuck with small and mid cap funds and planning to STOP SIPs, what kind of preparation could have been helpful?

Some pointers:

  • Know what you want to achieve from your portfolio. Better, what do you want your money to do for you. This has to be based on reasonable assumptions and expectations.
  • Build a diversified investment portfolio across various assets – equity, bonds/fixed income, cash, gold, real estate, alternatives, etc. Your goals and time horizon along with your appetite for risk will determine how much should go where.
  • Pick the ‘right’ funds. Go beyond numbers to make your investment selection. In mutual funds, funds with a focus and defined investment strategy, preferably multicaps, are more relevant than any other fund type. In general, avoid sectoral and thematic funds.
  • Large caps have to be the core of your portfolio along with a mix of mid and small caps (based on your risk profile and time horizon). Most investors are better off without mid and small caps. (Now is a good time to add more large caps, either via MFs or quality large cap companies.)
  • Tools like SIP are meant to reduce the cognitive load on your mind. When your financial plan tells you how much to save and what investments to make, the SIP ensures that the investment flows on a regular basis. You don’t have to sit up every time and wonder if you should be making the investment or not. Do it a few times and you will start freezing taking no actions. Once you start an SIP follow it through ups and downs of the markets. Because, more often than not, we don’t know what the markets will do.
  • There will be enough times when your resolve will be tested. Things will go wrong! You would want to get out and return to safety. Of course, you can do that. However, if you stay and make use of the opportunities thrown in once in a while, you can win the Jungle. That opportunity has started to appear now.
  • If you are in the markets, you will have to accept the bumpy ride and it will be bumpy (aka volatile). However, you can reduce the bumps in your portfolio by adequate diversification. Also, have enough funds set aside safely to tide over a long down period.
  • Don’t jump all in. Take it step by step. Become familiar with the terrain. Increase your exposure to the markets over time.
  • If you have a financial plan in place, your need to look at investments daily or monthly will go away. The plan provides for uncertainties and build buffers / redundancies so that you keep moving towards your goals. A prepared mind is more calm than an unprepared one.

In summary, your behaviour will determine how the markets reward you.

It is not late still. Even if you are losing money, don’t lose your mind.

By the way, you can learn to behave well with investing. 🙂

So, what’s your preparation, dear investor? How are you saving yourself from losing your mind even though you may be losing money?

The post Losing money and the mind appeared first on Unovest.

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