Do Blindly Chasing Returns Truly Help? Let's Find Out Here

09 Sep 2019

One of the biggest reason why people get into powerful investment instruments like mutual funds is chasing returns. Investors follow different ways of choosing mutual funds like maybe they have come to know about some that have given a historical return of more than 20% and some mid-cap or small-cap funds have given 30-40% in few years. So, their temptation is understandable.

Everyone has learned about how chasing temptation leads to unwanted consequences in their moral science classes back at school. In the case of investment, these consequences can potentially alter the life of investors and usually, in a bad way. But still, most investors succumb under their temptation and as history has shown, the inevitable happens. 

They fare returns that are simply not acceptable. But what's the reason behind this? Well, there is a common belief among most investors that high returns are something that one needs to constantly strive to live a better life. Thus, it leads them to go for products that are trending at any given point. And this is a grave mistake that changes their entire investment outcome!

Wealthclock Advisors is a respected name in this field. Over the years we have changed the lives of a lot of investors and this has led us to present this piece. Our focus remains on informing investors why chasing returns is a terrible idea while investing for goals. Let's look into this topic in-depth below. Mutual Fund Investment is a powerful investment tool if only investors know how to utilize them efficiently.

Don't just focus on returns

Let's understand this topic better with an example. Suresh is in his mid-30s and is doing a 9-5 pm job just like most do. He is saving up for a comfortable retirement. This is a very common scenario and you may have come across many people just like him. Upon a discussion, his financial advisor recommends he would need Rs 4 crore to retire and all these based on his present lifestyle and future needs.

Suresh being a practical individual knows he can have a rise in income through hard work. He has a probability of reaching extremely high salary levels just like his peers. But how much he tries, the chance of becoming the CEO of his company is minimum. And thus, he can' expect to save the money for retirement from his earnings. Through whatever money he manages to save, it still does not fulfill the entire retirement amount. 

So, what about the remaining amount? This is where he needs to invest in something that can help him in his cause. But having said that, he just can't simply look at any fund that has shown a considerable success during some years or so. Although he needs the money, he must keep in mind, that he has a long-term plan and thus choose his investment likewise. While choosing a mutual fund, keep other factors into the mind and not just returns. 

Goals and investment tenure are equally important

What Suresh can really go for is an equity fund. It is the most reasonable way to reach his retirement amount. And here, you need to consider returns that stay ahead of inflation for them to be thought of as worthwhile. He has time for his retirement and thus, he should concentrate on funds that can deliver stunning returns then. Equity is known to be volatile during initial investment years.

But makes up for it later. So, what Ramesh did here, he didn't just focus on earning lucrative returns at present but concentrated on his retirement (goal) and the investment tenure (long-term) and selected the ideal investment tool. In the case of long-term investment, the returns generated should beat inflation and only this will make it a successful one. And if are unsure about proper financial planning and goal setting, visit us and let experts take up this responsibility. We offer the most brilliant mutual fund investment advice.

What does chasing returns lead to?

While you chase returns blindly, you are just looking for the highest return giving investment. This generally means going for the highest return giving asset class and within it the highest return giving instrument. But did you know even though some particular funds have provided returns as high as 60% at one point, they went negative later on?

To put it in simpler words, greater the return expected, greater the chance that you could potentially lose a bit or your whole investment. When you just chase returns, what you are basically doing is taking an unnecessary and excessive amount of risk that potentially compromises your goals. So, be smart and chase your goals instead of returns. You will have a healthy investment experience. 

Come visit us for knowing about the most useful ways of investing in the financial market.

 

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