'Discipline is very important in investing'
“Market math shows that asset allocation contributes to 90 percent of long-term returns," noted Pratik Oswal, CEO of Glide Invest, a tech-based wealth advisory platform from the Motilal Oswal group, at the BFSI Leadership Summit 2021, organised by YourStory and EnterpriseStory on July 16.
Watch the BFSI Leadership Summit 2021 themed ‘Banking On The Future’ here.
Glide also focuses on passive investing, a strategy to maximise returns by investing in indices. While the world of finance has a saying that there are no free lunches, Oswal disagreed. “Diversification is a sort of free lunch,” he told Shivani Muthana, Senior Anchor at YourStory Media, during the fireside chat on 'Personal Finance: Investment, Wealth Management and Asset Allocation'.
“If you are looking at investing and you have several asset classes in your portfolio, then you can mitigate your risk up to 50-60 percent,” Oswal added.
India had a total of 6.22 crore dematerialisation (demat) accounts at the end of June 2021, an increase of 40 percent from 4.43 crore in July last year. With so many first-time investors coming to the market, personal finance has become important.
Oswal touched upon a long prevailing myth that one cannot be wealthy on a salary. He added that if one were to look at the wealthy, the common thread is that they own equity—whether it's in their own companies, or companies outside or private companies, or they own stock options.
“The whole source of being wealthy is ownership,” said Oswal. He added that in a country where a lot of us are still earning salaries, in order to be wealthy, it is imperative that we go out there and own businesses. “And, the stock market makes it super simple for you to do so,” Oswal added.
Glide Invest has an automated investment process on the basis of the investor’s risk profile and goals, where investors are assisted to diversify across asset classes equity, debt, commodities, hybrid international stocks and gold exchange traded funds (ETFs).
Oswal opined that goal-based investing makes it very easy for someone to invest and stay invested for a very long time. “Discipline is very important in investing,” he said. Wealth creation is a long-term process, and investing for 10-30 years, and staying invested in a disciplined manner through good and bad times is the prosperity mantra for wealth creation.
As a process, goal-based investing involves choosing specific financial instruments to work towards achieving a goal, which could be retirement, vacation, buying a new car, and so on. Glide Invest’s algorithm recommends a portfolio for each individual goal with exposure to several asset classes, Oswal said.
Justifying the need and relevance of goal-based investing, Oswal added that with Indian stock markets booming to new highs, there is an influx of investors. “But if you ask any expert, that (boom) is not going to last that long,” said Oswal. “You have good and bad markets, and for one to bear the bad markets, you have to have a goal in mind,” Oswal added.
Further, Oswal also stressed on the importance of risk for an investor both in the long and short run, and suggested that investors should avoid following stock tips, which in his view, never end up working out.
However, Oswal emphasised on some important personal finance investment tips. The first was: start early because time is the key in wealth generation. In his view, this helps, because with compound interest, the returns scale-up in the long run. “True wealth creation happens over time,” he reiterated.
While Oswal advised investors to steer clear of speculation and fad, he said it was okay to do it with a small amount of money. “Essentially, 80-90 percent should go into long-term investments,” Oswal said. “If you do well, you can optimise over time,” he recommended.
Watch videos of all the session from the BFSI Leadership Summit 2021 here.