Avoid gambling, start investing: How to make money in the changing landscape of wealth management

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As you do not teach the paths of the forest to an old gorilla, these days you do not tell an investor how to make money. At least that is what many retail investors seem to say after a dream run in the stock market through 2020. Departing from “we think”, investors now typically say: “we know”. Is this confidence or overconfidence?

Hundreds of new demat accounts are being opened every day. In the year, mutual fund investors either redeemed their portfolio out of panic or for the safety of their capital, which later shifted to profit booking or buying quality stocks at cheaper prices. The last few months' trends show that the same then converted into regular and full-time direct stock market investing.

A year later, Sensex has crossed 50,000 and even though today it is slightly below that mark, it is still flirting with the number. In 2020, investors were happy to get a bank fixed deposit rate of 6 percent but that has changed in the past few months as many of them claim that they make that kind of returns on a monthly basis from stock market investments. I also find a lot of people inquiring about penny stocks for intraday trading. They either have their own businesses and jobs, but somehow they find the temptation and time to do intraday trading.

• Avoid FOMO: Fear-Of-Missing-Out (FOMO) is a terrible state wherein an investor enters equity markets after everyone has gotten in. This means you may get into markets when they have already run away and soon after you’ve entered, the markets fall. You end up losing big money.

• Stick to your risk profile: If you do not like to lose money or you are conservative, then invest more in debt and less in equity. A raging bull market is not the reason why conservative investors should switch from debt to equity.

• Look at the last five-year data and not the recent months' success: The last one-year equity returns are tempting, but is your mutual fund scheme or a company’s stock price going up just because the tide has lifted it? When markets go up, a lot of junk stocks’ prices also go up. But a junk stock is still a junk stock. If the underlying company doesn’t make much money or is an inefficient one, things will catch up soon and its price will fall.

• Use Mutual Funds: It helps you diversify and make you stick to quality stocks till the time you understand the market well in terms of what to pick and when to sell. A combination of stocks and mutual funds can work wonders for your wealth creation.