Over the last few decades, the CAGR (compound annual growth rate) from Sensex and Nifty has barely crossed a moderate 10%. Investors look to beat this average while managing the risk and effort that comes with it. For this reason, we started SmartWealth.ai to enable investors to grow their wealth with greater confidence.
Earlier this year, we conducted a survey to understand investors like you better, with some important questions in the context of achieving financial independence:
- What drives investor success?
- What is the risk-return-effort sweet spot for investors?
- Do investor preferences correlate to returns and success in the market?
150+ diverse investors across India responded to our survey, giving us critical insights into the needs, mindsets, and attitudes of investors like you. In this article, we are sharing our insights on how the analysis of the survey led us to design our data-driven DIY (do-it-yourself) model stock portfolios.
#1 | Top 3 drivers of investor success
While it is common knowledge that higher returns require higher risk-taking, successful investments require managing your mindset and attitude to meet your investment goals.
Superior returns come to those who can manage intelligent risk-taking. Without taking a certain level of risk, you cannot achieve superior returns. Also, taking risks beyond a certain level reduces your returns.
Investors who are able to help themselves (DIY) generate superior returns. Such investors are unhappy with the advice they are receiving and are doing a better job than PMS/advisors.
Education is a key enabler. Self-awareness, research, and DIY-approach enable investors to have healthier mindsets and capabilities about investing. Such investors are better at programmatically managing risk-return balance.
#2 | The risk-returns-effort sweet spot
Investor expectations are anchored around 20% risk, 15% returns, and 30 minutes per week of effort.
Risk. Investor perspective reverses when their historical risk was less than 20%. If your historical risk was smaller than that, you expect risk to increase.
Returns. Investor perspective reverses when their historical returns are greater than 15–17%. If your historical returns were greater than that, you expect them to come down to that level, i.e., it is extremely hard to sustain better returns than 15–17%.
Effort. To satisfactorily manage investments, you need to dedicate about 30–150 minutes per week. If you are spending less than 20 minutes per week or way more than 150 minutes per week, it’s likely that you are doing something wrong.
#3 | Runway to financial independence
Typically, financial independence is when you have enough income-generating investments so that you no longer have to work to sustain your lifestyle. For investors like you, clarity on the runway to financial independence is achieved when you are aware of what you want (“future”) in the context of what you have (“present”).
- The desire for early financial independence comes if historically you have been able to generate high returns.
- Risk aversion and the desire for convenience progressively increase as you set your deadline for retirement (typically in the last 10 years to the desired retirement).
- Self-belief progressively increases until 5 years to financial independence and decreases when you have less than 5 years to financial independence.
- Investors on their journey to financial independence value research more than advice, and value advice more than investment execution assistance. There is a strong desire for control at all stages of the journey.
So, what do these insights mean for investors like you?
- Start consolidating investments at least 10 years before your desired timeline for financial independence to have better control over your lifestyle
- Move from risk-avoidance to intelligent risk-management to get superior returns
- Upgrade your investment knowledge by doing-it-yourself so that you identify and focus on what works best for you
Robust Model Stock Portfolios for Data-driven, DIY Investments
These insights on investor success, risk-returns-effort, and financial independence led us to design products for different types of investors:
1. Striving Investor. You have built 5–10% of your retirement corpus and are yet to get a grip on equity investments with scattered investments in Mutual funds, Equity, and Real Estate. You are ready to take more risks but are looking for big wins to shorten the runway to meet your goals. While our investment philosophy is not oriented to creating big wins, you could explore investing in our hero Aspire product.
2. Early-stage Investor. You have built 5–10% of your retirement corpus but have a more focused approach to investment and take the help of advisors. You actively look for advice and want to manage risk while shortening the runway to meet your goals. Explore investing in our Sprint product.
3. Mid-Stage Investor. You have built more than 25% of your retirement corpus and have a managed portfolio. You are looking for actionable advice, aggressive performance with higher risk but invest in a hands-off manner. Explore consolidating your fragmented investments in our Endurance product.
4. Financially Independent Investor. You have built 100% of your retirement corpus with a well-managed, diversified portfolio using advisors or through self-investing. You desire higher returns from Equity to continue to accelerate your investments. Explore investing in hero Triumph product.
Warren Buffet said, “If you don’t find a way to make money while you sleep, you will work until you die.” With our data-driven approach, we offer solutions to many needs of investors, no matter where they’re in their investment journey. Discover and invest in portfolios that help you grow your wealth with greater confidence: https://smartwealth-ai.smallcase.com/