The importance of discipline in investing

 Almost everybody I know has alll the information regarding the importance of a healthy diet. But almost all find it difficicult to follow it. The same with investing. And just like the a good healthy diet, one can experience the benefits of investing only if one maintains the strategy for the long term. Markets will rise and markets will fall. And often markets will move sideways for a long time. The key to a successful investing outcome depends on how one reacts to the markets over time.  The secret to success?  Do nothing. 

It is important that ones first sets out the goal and the path to it.  This would involve calculating the end goal of an investment process over time. This should consider the current cost of living, inflation, changes in lifestyle etc. And aside from the final goal, one needs to consider and sign off on the path.  How do you want to go about your investment process? There are several approaches and all could be useful depending on your own style and risk appetite. You can explore the various options in other parts of this blog.If you have a long investment timescale and can afford to sustain some ups and downs, you can probably take a significant amount of risk. If you need the money in 5-10 years and don’t have any other assets, a more cautious approach is required. Read about asset allocation here

Once you have set up the process, stick to it. Many times short term market fluctuations can lead you to doubt your decisions.  Don't let emotions interfere in your investment process. A sharp fall in the market can be stressful, and many investors may sell in panic. But a dip is usually followed by a recovery, and this can happen very quickly. Taking money out means missing out on this recovery. But more importantly, long-term returns are not based on a straight line. The drop and subsequent recovery are not a short-term anomaly that we need to allow to pass – they are a key feature of how the market functions. Remember that every drop in the market in the past has been followed by a recovery.

Click here

Holding a balanced portfolio over a long period of time and adjusting the allocation over time as your risk profile changes is key to a successful investment process. Discipline matters!