Ask the Right Question: About Returns Before You Start Investing
What return can I expect when investing in stocks or debts? This is a question that every investor asking his fund manager these days. Along with return, another word that is commonly found is “guarantee.” A guaranteed return is becoming a buzzword in the world of investment.
The investor must understand the return cycle between asset classes on an investment journey. Ideally, the investor should be asking, what is the liquidity of the investment? Secondly, he must ask himself/herself, what is the time horizon for the investment and what is the guarantee of protecting capital from the principal amount that he invests?
These problems should lead to asset allocation and the expected return on investment. But invariably the first question asked: what return can I get?
A return is an important factor in determining your investment. However, as a prospective investor, you need to understand the factors that influence profitability. And the sooner an investor finds out about it, the better investor can be in the long run.
As an investor, everyone would like to be in control. What you can control is your behavior and attitude towards investments, if you remember the process. What you cannot control is volatility or market movement.
Let’s go a little further. You are a busy professional. You think that the experts in this field are the best, and the consultant is the best to manage and guide you on your investment journey. At the same time, you also think that you need to manage your investments or part of an investment corpus yourself. You feel that you need knowledge and experience to cope with the investment part on your own.
And then you start investing yourself in the markets because you do not want to miss this opportunity. Also, you believe that as you move forward, you do not want to outsource your investment management.
As the flow of information becomes more secular, it is also available to most investors. If you knew the key management personnel of the invested company, you had more information and data to make an investment decision.
Instead of asking for a returns, investors must ensure cash flow to meet all your requirements. You need to understand that cash flow or lack of cash flow can affect the investment journey.
Cash flow in simple words means having cash in hand when the need arises, without disrupting the distribution of assets. Over the past 18 months, if you were a new investor or even an existing investor in stocks, especially in the mid and small-cap, then the returns are in the red. As an investor, you would feel disappointed and would like your investments to be in fixed income instruments, with a return of about 8%, against the negative return on equity related investments.
That is why it is very important that the investor asks the right questions and also knows about the movement of returns by asset classes during the investment period.