Diwali is the biggest festival in India and celebrated across the length and breadth of the country with a lot of lights, crackers, and sweets. On this day, people commonly worship
Goddess Lakshmi (the deity of wealth and prosperity) in its Dhana (wealth) Laxmi incarnation. Derivation of the word ‘Lakshmi’ is from the Sanskrit word “Laksya”, meaning ‘aim’ or ‘goal’. Apropos, this Diwali its devotees must clearly define their financial goals. Like the Trinity of Brahma, Vishnu and Mahesh manage all of God’s creations, wealth management also has three important aspects as follows: Creation, Preservation, and Determination.
Diversify – check that you have sufficiently diversified your portfolio in various asset classes, sectors, companies, and fund houses. Diversification will help you to beat the market volatility, minimize the risk of loss, preserves capital and generates superior returns.
Investment – the investor should see that his investment methodology is correct. By this, we imply that the investor should be first investing and then spending. Timing the market is not everybody’s cup of tea and the retail investor must invest systematically to average the rupee cost and enjoy the power of compounding. Besides this, he must also look at wealth preservation aspects like adequacy of life cover and emergency funds.
Will– this is an important facet of determination of the wealth after the demise of the investor. The investor must ensure that his will contains all his investment and wealth details and he bequeaths them with unambiguousness. Furthermore, during his lifetime he could ensure proper determination of his wealth by ensuring joint holdings and proper nomination.
Adviser – if an investor thinks that he can manage his own wealth and investments, then he needs to correct his belief. However knowledgeable an investor becomes he will still require financial advice to get the market insight and experience that will help him choose the apt product as per his financial goals and risk profile. Financial wisdom is the prerequisite of investments and wealth management. The investor must strive to gain such wisdom from the plethora of material in public domain, market experience and interaction with his financial adviser.
Loss – the investor should limit his exposure to equity as per his risk-taking ability. In his advent to create wealth, the investor should not cross the line and over-invest in equity. While equity gives more attractive returns vis-à-vis bonds and fixed income instruments, it also has the inherent disadvantage of eroding investor’s capital. Therefore, one must tread carefully in this domain. Moreover, he must try to mitigate losses through financial hedging and controlling his emotions, both greed, and fear, which can significantly increase the risk and adversely affect his portfolio performance.
Incompatible – in case your portfolio is not in tune with your financial goals and risk profile, you should remove incompatible financial instruments from it and tweak the asset allocation. In other words, after careful portfolio review, one must rebalance the portfolio.