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Investment Decision Guidelines: Essential Tips for Success

Explore the key guidelines for investment decisions, including the Ten Commandments, risk management strategies, and advice for aggressive and conservative equity investors. Understand the importance of asset allocation, diversification, and periodic portfolio reviews.

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Investment Decision Guidelines: Essential Tips for Success

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  1. Chapter 21 GUIDELINES FOR INVESTMENT DECISIONS What it All Comes To

  2. OUTLINE • Basic Guidelines – The Ten Commandments • Guidelines for Aggressive Equity Investors • Guidelines for Conservative Equity Investors

  3. TEN COMMANDMENTS 1. ACCORD TOP PRIORITY TO A RESIDENTIAL HOUSE 2. INTEGRATE INSURANCE IN YOUR INVESTMENT PLAN 3. CHOOSE A RISK POSTURE IN LINE WITH YOUR STAGE IN INVESTOR LIFE CYCLE 4. TIPTOE THROUGH THE WORLD OF PRECIOUS OBJECTS 5. AVAIL OF TAX SHELTERS 6. ADOPT A SUITABLE FORMULA PLAN 7. SELECT FIXED INCOME INSTRUMENTS JUDICIOUSLY 8. FOCUS ON FUNDAMENTALS, BUT KEEP AN EYE ON TECHNICALS 9. DIVERSIFY MODERATELY 10. PERIODICALLY REVIEW AND REVISE THE PORTFOLIO

  4. NEED FOR LIFE INSURANCE PHASE FINANCIAL AVAILABLE NEED FOR REQUIREMENT RESOURCES INSURANCE OF DEPENDENTS YOUNG NONE NEGLIGIBLE ABSENT ADULTHOOD (0-25) FAMILY FORMATION HIGH MEAGRE HIGH AND DEVELOPMENT TO MODEST (25-50) PRE-RETIREMENT MODEST SUBSTANTIAL DIMINISHED (50-60) RETIREMENT SMALL SUBSTANTIAL ABSENT

  5. RISK - RETURN PREFERENCES OVER INVESTOR LIFE CYCLE RETURN• EARLY CAREER• MID CAREER• LATE CAREER • RETIREMENT RISK

  6. INVESTMENT HORIZON VERSUS LIVING HORIZON The general recommendation that a person should gradually tilt his portfolio in favour of bonds as he advances in age implicitly assumes that a person’s investment horizon is more or less the same as his living horizon. This may often not be true because for most people the investment horizon may be longer, indeed much longer, than their living horizon.

  7. CONSTANT RATIO FORMULA PLAN

  8. FUNDAMENTAL ANALYSIS AND TECHNICAL ANALYSIS Fundamental Analysis Undervalued Overvalued Technical Weak Wait Sell Analysis Strong Buy Wait

  9. GUIDELINES FOR AGGRESSIVE EQUITY INVESTORS • Focus on investments you understand and play your own game. • Monitor the environment with keenness. • Scout for ‘special’ situations in the secondary market. • Pay heed to growth shares. • Beware of the games operators play. • Anticipate earnings ahead of the market. • Leverage your portfolio when you are bullish. • Take swift corrective action.

  10. INVESTMENT SWEET SPOT Zone of comfort Sweet Spot Zone of competence

  11. GUDELINES FOR CONSERVATIVE EQUITY INVESTORS • Avoid certain kinds of shares. • Apply stiff screening criteria. • Look for relatively safe opportunities in the parimary market. • Participate in the schemes of mutual funds. • Join a suitable portfolio management scheme. • Consult an investment advisor. • Refrain from short-term switch hitting.

  12. SUMMING UP • There are ten commandments of investing which should • serve as basic guidelines for all investors. • Aggressive equity investors play the equity game actively • and vigorously. In addition to general guidelines, there • are some special guidelines relevant for them. • Conservative equity investors seek to minimise the • investment risk as well as the time and effort devoted to • portfolio management. In additional to general • guidelines, there are some special guidelines relevant for • them.

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