Acknowledging it as the eighth wonder, even Albert Einstein had said, “He who understands it, earns it and he who doesn’t, pays for it.” 

However, in this age, when money can travel faster than time, patience seems to be a lost virtue. Real investments requires time and patience more than money. For wealth creation, the magic word is power of compounding.

Most of us don’t believe in anything long-term. Like instant coffee, we expect our money to grow immediately. And to cash on this pulse, market players are introducing short-term financial products everyday which looks attractive but, if you scrutinize further, you will understand that they are providing the same rate of interest like all other regular products. Subconsciously, we are aware of this fact but there are more than one reasons for which we get attracted to them.

My Money, My Business

With so many channels to track the markets and the investment space, we are updated on it on a minute-to-minute basis. This is a good thing as it increases our financial awareness. However, on the other hand, most of us has turned Do-it-Yourself investors with unsolicited guidance and half-baked information. We know that it is important to invest in both equity-linked products and fixed assets but are often confused about the ratio and the time period. According to financial advisors, two investors who might have invested in the same product for the same timespan (but in different phases) might earn completely different revenue. Now how is this possible? For any equity-linked investment, the markets need to be timed properly. You buy during the lows and sell during he high. Most of the investor don’t understand this equation, get baffled by the market movements and then do exactly the opposite. This is how the revenue earned by the two investors vary, opined market pundits.

Because My Friend Said So

Also, often our decisions are influenced by our friends and family members (who are also DIY investors). Clueless about investment choices, A imitates B who in turn imitates C to invest in a product which is doing well in the market. The moment its value starts going down, B (who has a low risk appetite) withdraws the money. This action directly influences A and C (who might have stronger stomach for riskier investments) and withdraw the money too. At the end of it, all three lose money and blame the product or the fund. Word of mouth might be a good way to promote a movie, play or a restaurant. But same does not apply for investment – it is a serious business. You need to understand that different people have different risk appetite and their capacity to invest is also different. So your portfolio has to be tailor-made as per your need and aptitude.

Identify And Then Allocate

The best way to avoid getting baffled by the market movements is to follow a goal-based long-term investment plan. If you let your money rest for a long-term that is 10 years or so, the power of compounding will help your money grow without being affected by the market movements. But short-term investments have their purpose too. Suppose you are planning an international trip or an expensive phone or a high-end TV set, instead of buying those in credit (which is a norm for the millennials) we can plan ahead and put aside small amount for it every month. Such accomplishments not only bring us pleasure but also save us from headache of credit.

The art of investment is in identifying our needs and wishes and then allocating the money accordingly. Some goes to the fixed funds, some in the long-term equity funds and some in short-term funds too. But, before all of this you should consult a financial advisor to understand what is best suited for you.