To assist NRI investors in navigating the ebbs and flows of the financial markets, we present some uncommon or unorthodox guidelines. These principles or guidelines are the essence of the investment geniuses’ time-tested wisdom.
Here are a Few Variables Regarding NRI Investments in India.
1. Three Ps of Investment
Businesses that are well-managed and profitable are the largest compounding machines imaginable. By acquiring a stake in these companies, you can participate in their ascent to the summit. But stock markets are under the control of bulls and bears who either drive stock prices to the zenith or to the deepest trenches.
The volatility of the stock market can cause even the hardest of souls to plummet. Persistence, patience, and perseverance are the three Ps that can help you make money, as they enable you to persevere through difficult circumstances.
With its informational carpet bombardment, the stock market encourages you to take “action.” The majority of the time, however, you lose money when acting on news or stock tips. Therefore, you should entrust a professional with the management of your funds, particularly market exposure, through mutual funds or ETFs.
2. Nothing is ever Lost Forever
If one examines the history of stock markets, they have experienced a significant collapse every 10 to 12 years on average. The fact that they have rebounded and created new peaks after each collapse, however, is as consistent as crashes themselves. Indicators of the stock market, such as the S&P 500 in the United States or the BSE SENSEX or NSE NIFTY in India, will therefore exhibit a chart with an upward trend.
Therefore, if you have emergency funds, are adequately covered by insurance, and have alternative sources of income, a stock market collapse should not cause you any concern. As long as the fundamentals of the economy in which you have invested – India, the United States, or the United Kingdom, for example – remain intact, nothing is lost, and now is not the time to give up.
If anything, now is the time to discover excellent companies at bargain prices and to add stability to your portfolio by purchasing high-quality bonds. (or enable experts to complete the task) If you anticipate corrections, you will be better prepared and will not dread them.
3. Effort vs. Effectiveness
In the actual, physical world, where labour is valued and, in some circumstances, worshipped, it is natural for people to link working greater hours with being more productive. Physical endurance has little to do with an investor’s cerebral ability, talent, or emotional equilibrium.
The primitive human mind applies millennia-old notions to something only a few centuries old. The stock market has produced perplexing results by favouring passivity over action – time in the market vs. timing the market.
The majority of investors have lost money by attempting to “time” the market. They forget that the world’s most successful investors have spent “time in” the markets.
4. Diversification is not a Garden, but a Bouquet
One of the concepts we frequently highlight is that diversifying your holdings across various asset classes, sectors, businesses, economies, etc. will help stabilise the returns on your portfolio. It will assist you in resisting the downward draw while providing space for you to make the most of the sunny conditions.
However, excessive diversification, defined as owning too many funds from too many AMCs without a good reason, is just as harmful to your portfolio as excessive concentration. A balanced portfolio would include no more than one or two funds in a category linked to a certain objective. An aggressive equity fund for long-term objectives, a hybrid fund for medium-term demands, and a liquid fund for immediate need.
If you have too many funds, you’ll be more confused, have no means to manage them, most of the funds won’t help you achieve any goals, and even the laggards will cost you time and money.
5. Make Debt your ally
One of the most disastrous financial errors is taking on debt for reasons that don’t increase your income. Known quote from Warren Buffet: “If you buy things you don’t need, you will soon have to sell the things you need.”
You may turn debt from an adversary to a friend in a variety of ways:
1. Track your spending using credit cards
2. Pay off all card balances on time to (a) avoid high interest fees (b) add 40–50 days to your cash cycle
3. Use any windfall to prepay or pay off high-interest debts
4. Don’t borrow money to speculate or buy other securities
5. Debt for productive assets, such as machinery or an industry, is only seen to be appreciable if the cost of financing is low and the asset’s earnings are sufficient to cover the debt
6. Because you are your most valuable asset, educational loans are a wonderful option
6. You are the True Asset or Liability
Assets and liabilities are, for the majority of individuals, a numerical measure that appear on the other side of their balance sheets. But investors are a whole other species. Her attitude, emotions, and mental fortitude are what make an investor either a true asset or a problem.
The majority of individuals, including investors, have lost money, but not because they lacked aptitude, competence, or good fortune. They lost it because their assumptions and emotions overcame them, and they put their logical minds to the side. They started at the top and left at the bottom!
The small percentage of people who have succeeded financially—in any endeavour—have done so by setting aside their feelings and making business judgments with a clear head, assurance, and reliance on statistics and facts.
7. Bonus Rule: Learning and Detachment
Using the Mahabharata as an analogy, being as detached from your investments as Lord Krishna was from the world can lead to financial enlightenment. However, even if you only obtain a fraction of that, it is still possible to attain financial security and, more importantly, independence. Losses and gains are inherent to the game, and your next action should be unrelated to the result of the previous one.
Understanding numbers, ratios, macroeconomics, the business climate, and market trends is essential. Similarly, ignorance of inflation, hazards, volatility, and tax regulations is more crucial than ignorance of returns. If you are ignorant, a calamity will strike you harsher, and you may never recover.