Just in case you don’t remember, in the beginning of 2023, many financial experts in India had made these predictions:
– High inflation is expected to remain sticky, interest rates are expected to rise rapidly and remain higher for longer
– The Russia-Ukraine conflict remains a cloud over the globe, with no clarity how it would pan out
– The US and other developed markets are likely to go into recession, impacting global growth
– China, on the other hand, is expected to recover on the back of post COVID re-opening and fiscal stimulus
– India could be resilient and just about keep its head above water, despite global headwinds
As 2023 ended, none of these expectations seem to have played out. In fact, in almost all cases, the opposite has.
Markets have been on a tear. And the Indian investor, right now, is probably feeling invincible.
Given how 2023 has turned out, it is pertinent to remember a quote by legendary investor Morgan Housel: “Read last year’s market predictions and you will never again take this year’s predictions seriously.”
But as we enter 2024, there are the usual forecasts that seem to say that there is more of the same to come. “India is in a sweet spot” is the typical story. The broad mood, for sure, seems to be so.
So what should investors be doing now?
Borrowing from the popular “There are two types of people in this world” meme, there are predominantly two types of investors in the markets, right now.
1. The Rockstar Investor: I think I can earn 20 percent per annum easily, I am an expert
2. The Spectator Investor: I missed the bus this time too, let me wait for the next one.
Depending on which of these two you relate yourself to currently, here are five timeless investment planning tips for you, which could be quite timely.
For the Rockstar Investor
Recognise the role of luck: Yes, your portfolio has done well last year. While your skill may have helped some bit, luck has played a large part. Recognise that. It would be a good time to revisit your investment hypotheses and check if they are robust enough to tackle headwinds.
Review and clean up: As Warren Buffett says, the rising tide lifts all boats. This is a good time to review your portfolio and clean up. Get rid of the not-so-good investments. Remember, the best time to get out of a ‘greater-fools race’ is when you are ahead.
Resist the wealth effect: Portfolios have inflated last year by unforeseen percentages. The immediate impulse is to rush out and buy the next device which you don’t need or take a sudden holiday that you haven’t planned for.
Align wealth to goals: Align your sudden “extra” wealth to the right long-term goals, so that you resist the impulse to “take action” in search of the next idea or the next big “tip”.
Accelerate your financial independence timeline: Review your goals with your additional wealth, so that you can advance your financial freedom milestone.
For the Spectator Investor
Timing vs time-in: Maybe you are risk-averse but the biggest risk is not taking it adequately and appropriately. It is said that Time in the Market is more valuable than Timing the Market. This Howard Marks quote subtly makes the same point: “If you wait at a bus stop long enough, you’re guaranteed to catch a bus, but if you run from bus stop to bus stop, you may never catch a bus”.
Understand risk correctly: Risk for you may mean volatility, but the actual risk is permanent capital loss. If your investments don’t beat inflation post-tax, your capital is actually eroding. Surely, that is not in line with your lifestyle, which definitely grows faster than inflation.
Safest asset class for the long term: Equity, through a well-diversified portfolio, is the only asset class that can build wealth in a consistent and safe way, as long as you have the right time horizon. But there is no easy road to riches, and the cost of the additional 4-5 percent long-term yearly return over lower-risk debt is the volatile ride. Brace for it and you will be rewarded.
Asset allocation: Dipping your feet in the water is never going to give you a feel of what the swim is going to be like. The biggest source of wealth creation is asset allocation, not fund or stock selection. A good thumb-rule to follow is 110%-age. This should be your equity allocation in your overall investment portfolio, at the least.
Consistency is your superpower: Over time, the markets will keep going up. This might not be easy to believe, but even from here, as long as the horizon is good, there is still upside. Hence enter when you have money. If it is monthly savings, a SIP is the best route, and if there are intermittent lump sums, use the STP route. But get in. There is a bus that goes past your bus stop every day.