Balance Your Investments Like A Pro Gymnast

By | January 30, 2021

What do gymnastics and investments have in common? Both require you to maintain the right balance if you want to win big. Let’s discuss this further.

Balance Your Investments Like A Pro Gymnast

Have you ever seen a gymnast in action? Did you really think that the human body is capable of doing all those acrobatics with so much grace? Neither did we! Gymnasts usually require a lot of strength and acrobatic skill as they do their different balancing acts. For them to succeed in any category – be it the balance beam, the pommel horse, the parallel bars, rings, etc. – they need to maintain the right balance at all times.

As much as maintaining the right balance is important for gymnasts, it is vital to your financial portfolio also, especially if you don’t want to lose your shirt in the stock market. You might be wondering how balancing your portfolio according to the market will help you achieve more, right?

Additional Reading: The Beginner’s Guide To Creating An Investment Portfolio

Let’s consider a scenario to understand this. Let’s assume that the markets are in a bull phase. Your current portfolio is completely skewed towards equities and you’re making a lot of profits in the current market. Everything is going good, but suddenly the market crashes and you lose all the profits that you recently made. Wondering where you went wrong? Balance, dearie, you forgot to balance your portfolio. Had you switched your profits from equity to debt, you would have been at a better place when the markets crashed.

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So, how can you maintain a balance? Here are some rules you can follow:

You gotta learn to be in control, man!

It is important for gymnasts to practise great control over their mind and body, or else they will end up injuring themselves. Every performance involves a lot of acrobatic skill and requires a high level of mind-body coordination. Gymnasts need to have a lot of control to perform these acrobatic feats.

When it comes to your finances also, you need to have a lot of control over them if you want to confidently take charge of your financial decisions. Also, being in control of your finances means that you are aware of your cash flow – how much is coming in, where it lies and how much is going out. To gain control over your finances, you need to budget, save and invest.

Budgeting requires you to pen down your income and expenses (fixed and variable). Savings require you to cut down on unnecessary expenses, so you can increase your savings. Once you have enough, you need to invest this surplus to grow your wealth and meet your financial goals.

Additional Reading: Savings vs. Investments: Do You Know The Difference?

You gotta maintain the balance, yo!

For a gymnast to excel at his game, he needs to perfect the balance between agility, flexibility, endurance, mind control and strength. Similarly, when it comes to investments, as an investor, you need to achieve a balance. This can be done via asset allocation (which again depends on your investment goals). Distribute your wealth across equities, debt funds, real estate, gold and other such investment products.

You need to figure out how much you want to invest in each asset class before you start investing. How? It totally depends on your current situation, your financial goals, their time horizon and your risk appetite. Remember that each asset class serves a distinct purpose. For example, equities are your route to amassing wealth (though they are a little riskier than other ventures!) while debt funds are a safer bet and they provide much-needed stability to your portfolio.

Additional Reading: How To Build A Complete Financial Portfolio

Now why have we been stressing on maintaining a balance in your investment portfolio? Solely because we don’t want your investments to be deeply affected by market movements. Well, markets are unpredictable and any big loss could affect your entire financial plan. You wouldn’t want that, would you?

You gotta review your performance, buddy!

Reviewing one’s performance is very important if one wants to succeed. A gymnast also needs to review his performance and make adjustments to do better at each round. Unless he reviews his performance, he will not be able to better his score in the upcoming rounds.

This applies to investments as well. You need to review your investment portfolio periodically. It will help you stay on track and also make changes as and when necessary. You may have chalked out the perfect investment plan but a review is necessary to see how far you’ve reached and to take any corrective action if your plan is failing.

Additional Reading: Newbie Investor? Avoid These 8 Common Investment Mistakes!

Here are a few reasons why a periodic review is beneficial to your investments:

  • Helps accommodate changes – Your goals are likely to change as you move ahead. You may want to add new goals, or remove or alter any financial goals that you may have previously set. You may also want to make changes to the percentage you are investing in the different asset classes. A periodic review will help you to implement these changes.
  • Check performance – By periodically reviewing your funds, you will be able to compare their performance with other similar funds, the benchmark index and your initial predictions. If performance is not as expected, then it will be easier for you to take the necessary steps to align the performance of your portfolio with your goals.
  • Manage fluctuations – As an investor, it is important for you to be patient. Short-term fluctuations are bound to happen since you’re dealing with the markets here. But these short-term fluctuations shouldn’t deter you. A periodic review will help you get a better understanding of whether these short-term market fluctuations had an impact on your investments or not. The key here is that you shouldn’t panic if the market falls suddenly. Remember that you are aiming for returns in the long run.

As we have mentioned throughout the article, it is important to maintain the right balance in your investment portfolio if you want your investments to work in your favour. You get the drift here, don’t you?

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*First published in July 2017.
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