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Investments

4 Reasons For Zero Economic Growth Even After Investing in Various Schemes

Rules that will make your investments fruitful
4 Reasons For Zero Economic Growth Even After Investing in Various Schemes
Image credit: Shutterstock
Project Manager, MySIPonline
4 min read

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Before investing you need to explore what is best suitable for you. The financial world provides various investment options, and exploring them will only give you the real experience of associated risks and returns. We have been extolling the virtues of variegation in investments and over accentuating its importance because it has not only helped in gaining average returns, but also mitigated the risk involved. However, continuing with the investments which actually suit an individual's risk profile only dishes out the successful growth. The derogatory saying, "Jack of all trades, master of none," supports the just said. The adage implies trying to get hands on everything leaves you with expertise in nothing.

If you are experiencing zero economic growth because of the same, then the below explained four reasons are responsible for holding back the progress of your investment portfolio containing miscellaneous products.

Overburdening the Basket

'Diversification' is an important portfolio management strategy used to diversify your investment in multiple schemes in order to hedge the risk. But, having too many products in the portfolio will lead to low impact of the outperforming investments. This, in turn, endeavors lower than expected returns and a loose grip on the degree of risk.

For instance, a mutual fund investor tries to diversify the investment in various mutual fund schemes; where-after analyzing the portfolio, it is found that every fund has a major allocation in similar stock, i.e., HDFC. Now, because of this stock overlapping, if HDFC does not perform well, then instead of diversification of risk, the overall portfolio will get affected by the dig in HDFC stock prices.

Inefficient Management of the Portfolio

Active portfolio management has always played a pivoting role in achieving the growth of investment. This investment strategy keeps the portfolio inline with the market movements where the right entry and exit sometimes assist in taking pre-calls before any uncertainty occurs.

Accumulation of too many schemes in one portfolio brings about the incompetent analysis of the products you are investing in. This gives rise to disorganized portfolio leading to a higher degree of risk than expected. Lack of deliberate portfolio monitoring is another root cause of fabricating an unbalanced portfolio. These two are the aspects because of which your pocket gains compromised returns.

Accrual of Incompatible Investment Products in the Portfolio

How would you feel when you are familiar with different routes, but unaware of the destination you want to reach? Similarly, if your investments aren't aligned with any motive, objective, or goal, then how can you be assured that the product you're investing is relevant? Warrant Buffet has impeccably quoted "Risk comes from not knowing what you are doing". This explains that an indecisive mindset and undefined risk profile (whether psychological or financial) can get you muddled up in a wrong investment.

Improper Asset Allocation and Unsound Investment Strategy

Buying the right products is undoubtedly necessary, but buying the right products with the right asset allocation is the master's choice. Because out-of-season asset allocation not only diminishes the returns in one's sack but also becomes the sign of weak investment strategy. For complete economic growth, it does not matter how many schemes you have invested in, but what asset allocation and investment strategy are being applied.

Suppose you have a long-term investment goal which allows you to bear high risk, but because of incapability of taking psychological risk, you turn towards the conservative products like FDs or debt mutual funds. Since debt schemes cannot beat the returns proffered by equity, hence you should invest in equity with a long-term perspective. This can help in risk abatement and amass good returns in the sack.

To the above discussed reasons, we would like to suggest you to hire an efficient financial adviser who can assist you in choosing a good product, implementing shrewd strategy, and guiding you for the right asset allocation in order to bring up financial prosperity. Investment in different schemes is considerable, but investment in excessive schemes will hamper the financial growth. So, dear investors or to-be investors, we would like to end this write-up with a citation-cum-advice, "Instead of settling for a weak investment strategy, you must tweak your investment strategy!"

Opinions expressed by Entrepreneur contributors are their own.

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