Business Today
HomeMONEY Story
Keep It Simple - Don't Overcomplicate Your Investments

The more complex your investments are, the more difficult this is. Simple ideas are best, simply because when they succeed, the reasons are obvious. And when they fail, the reasons are obvious too!

Keep It Simple - Don't Overcomplicate Your Investments

As human beings we all love a good challenge. It gets out with adrenalin pumping and most importantly, we feel an ingrained sense of achievement on accomplishing it. This very ideology leads us to believe that in case something is more detailed oriented or complex it is perceived to be better.

A lot of market gurus and product managers have understood this bias and today be it a smart phone, an app or a pizza; it is always loaded with additional features and variants - to make it seem more desirable. The problem is that this desire to complicate things has extended to financial products as well. I strongly believe that keeping things simple is the key to making the right investment decisions.

When it comes to savings products, simplicity is not just a useful characteristic, it is absolutely mandatory. And here is the reason: if an investor does not fully understand a financial product or service, then that's a problem, regardless of how good it may otherwise appear or even actually be. And such understanding can't come with complex products.

I will suggest these 3 simple points to ensure that - savings never become complicated.
  • Do not over diversify
While building your portfolio, it is often recommended to consider diversification to hedge against any risk you may eventually incur.  But sometimes people take diversification way too seriously that result into over diversification.  Over diversification is a serious and common mistake that decreases investment returns disproportionately to the benefits received.

My advice is simple, when in doubt always approach a professional who know better!

  • Investments That Enforce Regular Payments

One of the most important reasons that I constantly propagate investing in a Mutual Fund is that they enforce regular investments. I believe that the best way to invest is an SIP that helps you from the decision fatigue of identifying where you need to make an investment. Once your investment patterns are regularized you are definitely expected to make strong returns in the near future.

  • Stick To What You Know

Information overload is one of the biggest irritations in modern life. This holds especially true for the stock markets, where we are bombarded with real-time information about all our investments - quite to the last minute. Excess information often tends to clutter your thought process and you end up second-guessing in every decision. To avoid information excess, meditate well on your decisions and focus on numbers and facts - they don't lie. You will have a clear idea of what did well and what didn't.

The investments that do well will have a large and clear impact on your investments, and the ones that don't will be easy to single out. The more complex your investments are, the more difficult this is. Simple ideas are best, simply because when they succeed, the reasons are obvious. And when they fail, the reasons are obvious too!

(Rahul Jain is the Head of Personal Wealth Advisory, Edelweiss Wealth Management)

Get latest news & live updates on the go on your phone with our News App. Download The Business Today news app on your device
More from MONEY