Since the 2014 Lok Sabha Elections, the stock market has seen some promising trends that have attracted a number of investors towards equity investments. NIFTY’s movement from 7000 to 8000 has been the second fastest 1000-point rally that market has ever witnessed. Be it because of the policy actions of the government, inflow of foreign institutional and domestic institutional money or the recent performance of rupee against dollar, investors are going all in with their investments in a hope of making big bucks. This is causing many investors to complicate their investment portfolio by trying to invest in areas where they see even the slightest scope of making a profit. Rather than keeping their portfolios simple and manageable, they are muddling them up with unnecessary investments in sectors they don’t even have much experience with. This can not only confuse the investor but can also make him lose out on the investments that actually had a potential to bring better returns.
Like in other aspects of life, a simple approach to investing also works a great deal for an individual. It is better to have a simple investment portfolio that requires less effort from your side than to have one that constantly keeps you on your toes. The chances of an investor making mistakes or missing out on great opportunities are far greater when his portfolio is overloaded with numerous investments. A simplified portfolio that consists of only a few selected investments on the other hand would be much easier to manage and analyse.
The need for such a portfolio is more than ever in the current market conditions where everyone seems to have their own complex theories about what will work and what won’t. The current scenario has got most of the investors so optimistic, that they are ready to believe any theory that others seem to come up with. Combining things like commodity prices, monetary policy and other socio-economic changes, salesmen are weaving hypothetical scenarios which are merely based on assumptions. Due to this investors are tempted to add a lot of funds to their portfolio which is mostly just an unnecessary burden that they are forced to carry.
Contrary to popular belief, the more complex the theories that people have about investments, the more likely it is that people will fall for them. For most of the people who do not have a substantial amount of experience in investment, following the herd seems like a much easier option than just sitting around idle, while others keep taking chances and making money. They believe in the trends that people are mostly following and because there are so many of such opportunities around, they end up investing in numerous funds to be a part of the winning herd. What they don’t realize is that in the process of buying more funds they are further complicating their portfolio and taking a chance on someone else’s speculation.
Simple investment theories may seem too good to be true and one might think that he is not really making the most of the opportunities that a market is offering. However, over the long run it is these theories that eventually give you a more valuable result. When an investor keeps his portfolio simple it becomes really easy for him to find out the reason his investment worked or did not work. Because the logic is so obvious with simple portfolios, it helps an investor make calculative decisions for the future. With a complex portfolio however, the overall picture is so messed up that one can hardly make out the difference between what worked for him and what didn’t.
While keeping it simple is important, you should not confuse it with not having diversification when it comes to your portfolio. Diversification and simplicity can go hand in hand if you know how to create a balance between them. Choose the right kind of investments in various sectors that show consistency in their numbers over a long period. Don’t just fall for funds that people have suddenly started running after. Make well planned and calculative decisions that give your portfolio a good value and protect you from market volatility. A rightly diversified portfolio that is easy to manage will make the entire investment process a growing experience for an investor. So, always remember, ‘simple is beautiful’.