Five key financial lessons to learn from your teachers

Even the most seasoned financial experts might not be able to predict when the market will perform well. One could make predictions basis the analysis of the market but even market experts find it difficult to pin point on the exact time one should enter/exit the market. However, staying on the sidelines and watching the market movement will hardly add value. Due to the various awareness drives, consumers have understood the importance and need of investing their money, rather than just saving it. The idea is that one should take a well calculated step as early as possible. When one invests, the ideal approach should be to invest for the long time to be able to leverage capital appreciation and wealth creation opportunities.

The consequent outcome of one’s efforts is always a reflection of their initial actions. Similarly, the subsequent performance of an individual’s portfolio is a result of meticulously crafted strategies, schemes that they may have invested in, the variables that have been taken into account etc. While there is some scope for change basis the market movement, the benefits or demerits largely depend on the investor’s actions/choices. For instance, investors who opt to stay invested in Quality-focused companies or assets with a higher risk appetite, may see the impact reflected on their portfolio accordingly.

Investors are advised not to allocate their entire investment corpus to a single scheme or asset class. This may result in the creation of a concentrated portfolio that may not achieve the desired output. The objective of diversification needs to be to protect the investment portfolio by ensuring exposure across multiple asset classes. Furthermore, prudent asset allocation has the power to be a key differentiating factor in an investor’s portfolio.

It is wise to be careful and responsible when it comes to money management. While investors can choose any particular asset class depending on their risk profile, it is advisable to thoroughly analyze and take expert help before finalizing on a particular class. When investors are investing for the long run, it is important to understand how certain standard risks can affect the portfolio and make the necessary corrections in the investment strategy. Furthermore, getting over zealous by temporary market changes and changing the asset allocation using the movement as an indicative benchmark may not necessarily deliver the desired returns.

Nothing in life can be predicted. One may plan everything right down to the last detail, but certain unforeseen events have the ability to strike unknowingly and change the entire outcome! It is important that we learn from these instances to be able to circumvent (if not completely avoid) them in the future. For instance, those who were overwhelmed financially during the time of the pandemic have now taken the initiative to plan their finances prudently. A contingency plan or emergency fund is gaining significance in investment portfolios to provide last minute access to liquidity without stressing the individual much.

All our lives, we have been taught by various teachers (our parents, those who schooled us, role models, everyone) that tough times don’t last but tough people do! In the current volatile times, these significant life lessons are proving to be valuable financial lessons as well, acting as guiding principles.