How to become an expert mutual fund investor: Be a sage

What we have discussed so far is an easy bit, as it gives you something to think, plan or execute. But the last and perhaps the most difficult part of financial planning is to 'do nothing'. Yes, you read it right. Once you have built up your portfolio based on your risk tolerance, then apart from rebalancing, do nothing more and just remain invested. Doing nothing is an activity that is not normally associated with success in anything. In fact, it is associated with laziness and failure. But as we keep saying, that is probably true for most things in life except investing.

You will encounter all sorts of temptations and pressures along the way to act otherwise. Markets may go up and down, reacting sharply to the latest news and events such as the India-China or India-Pakistan conflict, pandemic, etc., followed by extreme predictions by market pundits. You may also see other products catching the market fancy, as they are delivering blockbuster performance, thereby making your mutual fund investments look much paler. This may provoke you to do something and take some action. If you do act out of temptation and make a wrong decision, your returns and even your financial goals may suffer.

No surprise, many investors complain that while the funds they own have healthy trailing returns, their actual returns are subpar. The reason behind this discrepancy lies in their behaviour. It is general investment wisdom now that one should not try to time the market. However, in order to maximise their outcomes, many investors indulge in just that. By investing more at the peak and withdrawing when the market is falling, they end up doing just the opposite of what is optimal. This oscillation between greed and fear is a major reason behind investors failure. This prevents an investor from getting the same returns as those given by the fund. As someone rightly said, keep your eyes wide open before investing and half shut afterwards. Therefore, the best course of action for an investor is to ignore all the noise and continue investing. Stay focused like a sage!

Also in 'How to become an expert mutual fund investor' series:

Part 1: Know thyself

Part 2: Begin with the end in mind

Part 3: Balance is the key

Part 4: Avoid hitting bumps

Part 5: Don't forget the reverse gear

Part 6: Cherry-picking funds