Who doesn’t want to know the secret of High Returns? We keep getting requests for suggesting best investment plan with high returns, High Return Investment in India, low risk high returns investment, high return stocks – the list will keep growing so let’s give you the secret of achieving high returns.
High Return Investment – Uncovering
Is it a good time to invest in equity? Sorry to say but if you are having this question in mind; you have already lost half battle. Don’t get disappointed – I assume you are new to this game & don’t know much about its rules so let’s give you one more chance. Happy!!
Sometimes people also ask “which are the mutual fund where we can get HIGHEST Return”. I think there is no definition of “Highest Return” but let’s stick to high return for time being. High return for me means beating inflation & comfortably achieving your goals – that’s it.
80:20 rule in your investment success
80:20 rule apply everywhere in this world & same also applies to your investment. But the problem is people waste 80% of their energy on those things which will only contribute 20% in their financial success. And not even 20% on those things which are going to contribute 80%. Let’s understand where things can go wrong.
Let’s start with the things where people give most importance
Timing the Market
“Market kya lagta hai” this is the worst question one can ask & if someone start a reply with “mujhe to lagta hai….” – he is lying to himself. Market timing is the worst strategy which someone can adopt & it hardly contributes any positive returns in once portfolio. But if we talk about investors & advisors 80-90% focus is on this thing – bad part is they have not even learned from their past mistakes. Various researches have proved this strategy if successfully implemented can fetch you 3% of your total returns. Only 3% what about rest 97%??
Check this Video before going forward – High Return Investment
Don’t look at data – it keeps changing
Selection of Security or fund
“Which is the best fund or best investment?” I think this is the most common question I have heard on TFL. There is nothing called BEST – which is best today gives no guarantee of best tomorrow. I did some research with diversified equity funds & shockingly there were very few periods where best fund of last year got listed in even top 10 funds of next year. So best is a myth – yes you may find few good funds with consistent returns. But even this will not contribute more than 7% of returns. So again what about the 90%??
End of the story or a new beginning
90% of the investor’s waste their 90% of the energy in timing the market & selection of best funds or high return investment but both of these combined is not even able to contribute more than 10% in your investment return. So you can see all your efforts till date have gone in drain. So what are things which are important to have a successful financial life?
Actually if we were talking about the steps – portfolio construction comes after asset allocation. Portfolio construction is a very detailed thing but it do two things either reducing your risk at some point of return or increasing your return without increasing risk.
Let’s take example on 5 year period (only mutual funds) – these 6 funds (existing portfolio in below chart) have return of 13.91% & risk of 29.63%. Now we have task in hand that we have to increase its return without increasing risk or other way round reducing risk without reducing return.
If you can see I have not made any changes in the best performing fund of this period – that is HDFC Equity Fund. I have also not done major replacement of the funds or substantial changes in the fund allocation. In last column you can see there is a shift in portfolio but there is no change in Risk & Return.
This is where most of returns are generated but not even 1% investor reaches here consciously. People may have something in debt & some part in equity but it is not a thoughtful effort. This strategy is very simple but hard to stick – as they say investing is simple, but not easy.
Asset allocation means dividing the ratio of asset classes for investments as per the risk and time horizon of investment. The weightage of each asset class is kept constant. Once you have made this portfolio you just need to rebalance it at pre-decided date. The profit in the asset class which outperforms is booked & the proceeds are used in the asset classes which underperform in that particular period. This is done keeping the original weightage of the asset class in the portfolio. If we see in 2007 equity gave exceptional returns so if you would have followed this strategy your assets would have automatically moved from equity to debt. And in 2009 when equity underperformed it would have indicated you to increase your exposure in equity. With time this strategy reduces the risk & increases return.
This is the place where winners do all wrong things to lose the game. If you are new to equity markets you must be thinking that people are fool who invest in top of the market & exit in the bottom. Warren Buffett said “In the equity markets, the rear-view mirror is always clearer than the windshield.” So don’t be over-confident and prepare yourself that you don’t stuck in cycle of greed & fear – 80% of the market participants are going to do this mistake again & again till they broke. That’s the reason equities have given substantial return in past but you will hardly find people who have build their wealth through it. Mind you “It’s the mind game & not number game”.
You cannot change your destination overnight but you can change your direction overnight. So turn to right direction & start moving.
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