10 INVESTMENT RESOLUTIONS FOR THE YEAR 2010
MURTAZA KHOKHAR - DEPUTY MANAGER MARKETING
UBL Fund Managers Ltd
Updated Feb 26, 2010
Every year starts with a handful of New Year Resolutions - losing weight, giving up a bad habit, spending more time with family, or anything personal or professional. When we can make so many commitments to different parts of our lives - why forget our money? Let us welcome 2010 with 10 simple investment resolutions we can all strive to make.
I WILL DO DUE DILIGENCE BEFORE INVESTING
It is very easy to invest in a mutual fund and then blame the fund when something goes wrong. Do the due diligence before investing. Find out about the fund's track record, review the fund's investment portfolio, where it invests and the quality of assets it owns, and most importantly assess the management skills of the management company; their standing in the industry, sponsors, years of experience, management quality rating, product portfolio, customer services, etc.
I WILL INVEST BASED ON MY NEEDS
No two investors are the same and every investor has different needs based on their income, life stage and responsibilities. Investing is not about gambling or playing the market for fun, it is about building long-term wealth to meet your future needs. Understand what your needs are and then invest appropriately in different asset classes and instruments.
I WILL THINK ABOUT RISK
Most investors conveniently ignore the more important side in the risk-return equation of investing - the risk side. Risk exists and is different by stock, sector, and asset class, and every investor should have a basic understanding of risk. Don't evaluate the return on any investment independent of the risk of that investment.
I WILL BE DISCIPLINED AND NOT EMOTIONAL ABOUT MY INVESTMENTS
It is very easy to see an article about the 10% rise in a particular stock and go out and buy it, forgetting that news is meant to get you excited. If there is one place where discipline and not emotion pays off, it is your money. Make a plan when you build a portfolio - what is the objective of your investment, what is your time horizon, what are your return expectations, what level of risk are you comfortable with?
I WILL HAVE REASONABLE EXPECTATIONS FROM MY MONEY
Investing in the stock market will not double your money in a year - you should stop working if it did. Have reasonable expectations from your money and fund manager. A manager who can beat the market by 5% every year net of all fees has done very well by global standards and a manager who claims they can beat it by 30% a year is bluffing. Any equity investment will lose some money in a 2008 like crisis - no manager can perfectly predict a crisis and neither can you.
I WILL NOT TRADE ON TIPS
We love investment tips, from our brokers, bankers, family, and colleagues, particularly when they come for free. We are also happy to trade on those tips, forgetting that most of them are not grounded in any kind of reality. Anybody with an opinion who has watched a little bit of TV will give you a tip - that does not mean it makes sense and that certainly does not mean you put your hard earned money behind it.
I WILL NOT FOLLOW THE HERD
Who doesn't love following the herd, whether it is movies, music or money? If everyone is buying a particular stock, there must be something great about it, right? Wrong. What everyone is investing in or not investing in does not have to be right - in fact, investing by nature is about discovering opportunities that others haven't. Next time, when you make an investment decision, don't look to the world for validation.
I WILL HAVE A GOALS-BASED RATHER THAN A RETURNS-BASED APPROACH
The rally in the capital markets during 2002-2007 resulted in overconfidence amongst many investors leading to an unfortunate shift from a 'goals-based' investing approach to a 'returns-based' one. If you start chasing returns, rushing into aggressive mutual funds that tout short-term returns chances are you may end up with massive losses when the market crashes. To prevent this from happening, always stick to a goals-based approach when investing your money.
I WILL TRY SOMETHING NEW WITH MY MONEY
Are you tired of saying that there are no new investment opportunities available in the market? Think again - the market is full of investment solutions with interesting ideas and new approaches to investing. All you have to do is seek them out and give them a listen. Suspend your existing beliefs and learn new ways to invest, and try them out, at least in a small dose. If nothing, it adds valuable diversification to your portfolio.
I WILL INVEST, TODAY
If you do one thing in 2010, don't try to time when you invest. There is always a great excuse not to invest - market has run up too much, I am busy with other things, I can't afford it. All the stars in the investing world never align and no time is a perfect time to invest - that is how markets work. If you have a goal-based approach to investing, there is no difference between today and two weeks later.