The Sensex hit the 40,000 mark in May this year. It has taken the index more than 13 years to reach this level after it crossed 10,000 in February 2006. Here are the top 3 lessons learnt during this period which every financial advisor should know:
- Stop searching for the ultimate scheme
Clients tend to invest in schemes which have a higher ranking and then forget about them assuming the scheme will certainly produce returns in the long term. Financial experts must explain to them that it is not possible to ascertain a particular scheme which will give maximum earnings. The best strategy is asset allocation wherein you can choose investments that match their goals. However, to make sure that the selected schemes deliver positive returns, advisors need to review client portfolios on a yearly basis.
- Never be greedy and take the wrong decision
Investors presume that the returns earned in the past will be repeated in the future as well. As a result, they book profit which experts warn against. When the markets are doing well, your clients might wish to exit their investments. But as their advisor, you must prevent them from doing so. The earnings growth and gains have been below average in the past two months. The correct time to book profits will be after 2-3 years when the Sensex earnings CAGR (compounded annual growth rate) is projected to be 20-25%.
- Don’t let past returns affect present equity buys
Owing to historical low returns in the past, mainly from Sensex and mutual fund schemes, your clients might be apprehensive to invest in equities. Financial experts must keep in mind that stock markets globally are not always consistent and go through these long phases of low or zero earnings. Persuade your clients to invest in equities because markets will pick up eventually.