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Select the right investment options

Investment options change everyday in terms of their performance. This makes it difficult to predict their future performance. Arnav Pandya tells more.

business Updated: May 29, 2008 21:07 IST

Investment options change everyday in terms of their performance. This makes it difficult to predict their future performance. The easiest route adopted by many people is to go towards the best performing investment but in many cases they realise that the investment is not performing so well after a period of time. All this also requires a plan in terms of the future steps that will be taken for the selection of the investment.

Belief in the best performing investment
The easiest selection for a person is to look at the best performing investment in the past and then put the money into this instrument be it a mutual fund or even a stock. The investor must understand that the investment has already performed and this need not continue in the future.

There is nothing that says that it will not perform well in the future but one should not expect it to remain on the top of the return charts because several other factors would also have contributed to this particular position and these can change. Also as the situation develops there will be other opportunities that will also perform well.

Potential


The actual condition that needs to be monitored is the potential of the rise that can be seen in the instrument. This will involve looking at the current scenario plus all the factors that will influence the performance going forward. This will ensure that the investor is able to select that investment that has a good potential in the future even though in current terms it is not the best performing investment. An investor is looking to earn future returns and hence what happens from now on is important.

Change in position
Many factors impact investments. This can change the market conditions and this impacts the overall position of the investment. A good performing investment might fall back after sometime in the limelight and a poor investment might zoom ahead. This kind of change has to be expected and the investor also has to ensure that they invest after considering this factor. Changes thus should not scare the investor into taking a specific kind of action because risks will remain an essential part of the investment.

Conviction
The best thing to happen to the investor is for them to have some conviction in the investment that they are making. There has to be some reason why a particular investment is selected and then even if it does not perform as per expectation the investor will know what is going on. This is far better then investing without knowing anything whereby wrong decisions can be taken at a later stage.