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What is the best long term strategy for mutual fund investing?
5-5-5-5 Rule of Mutual fund investment journey
The 5-5-5-5 rule is the simple agenda that one should deploy while going for mutual fund investment.
1. First fundamental principle is having a 5+ year investment time horizon. A long-term investment can help tackle market volatility and create wealth for various long-term goals .With long-term investing, equities can create wealth for you with the magic of compounding and fulfill all your financial goals. Anything less than 5 years is not at all suggested , to be calm and composed with financial planning – follow 7 year approach of long term investment
2. Second principle is follow the 5 fund approach with the simple view of diversification.
Passive Index fund : Bet on high-quality large cap Nifty stocks which are like the foundation of your portfolio
Value funds: Value investing is described as investing in great companies at a good price, not simply buying cheap stocks . Buy stock when the price is low and sell when it increases
Midcap/Small Cap: Allocation to small and mid cap funds is necessary as it can offer exponential returns.
International funds : Proper allocation of international funds needs to be part of the mutual fund investment journey.
Sectoral fund : At any time , there will be a sector which will be talk of the season with astounding returns or any cyclical returns . In recent times , tech is undervalued to a large extent and can give a breakout . This helps you capitalize in extra returns.
3. 5 essential market behaviors to follow :
A. Don’t sell in panic
B. Buy when market is fearful
C. Sell when market is greedy
D. Don’t be in hurry to book profits
E. Don’t get gloomy or discouraged with short term volatility. Think Long term
4. The most important fundamental rule which helps in compounding wealth is 5% step up every year. Step-up SIP is a powerful strategy that can substantially boost wealth over time. Increasing our SIP amount (annually) is like boosting the capacity of your equity portfolio
The 5-5-5-5 Rule of Mutual fund investment journey is very powerful which is pivotal in transforming the long term investment plan to achieve financial goals of an individual.
This 5-5-5-5 Rule teaches the basics of patience by going for long term investing , focuses of diversification of funds to protect your losses and augment your gains , makes you believe in 5 basic and essential market behaviors one should follow (addresses 5 common mistakes (of investors) that trigger failures in equity investing )and lastly stepping up investment which is important for compounding wealth.