How to grow wealth in the long run by investing in the right options? MintGenie explains

livemint.com:

compounding effects of wealth are best achieved through long-term holdings. Time is also a great friend in terms of riding entire lengths of investment super-cycles and not getting caught in attempting to dually time both, apt entries and exits. Per probabilistic laws, one typically ends up not being able to time both well and hence expected returns take a hit because of this.

Hence, time in markets is something that is anticipated to deliver much more return than timing the markets. Investors typically first need to chalk out their goals and financial aims in order to have a bird’s eye view of their investment plans. Once the goals are set, only then should the segregation be done in terms of long and short term.

One could then follow a goals-based investing approach and form two portfolios for catering to the long and short term. The long-term portfolio ideally needs to have a positive expected risk-adjusted return comprising some weights for each asset class. Typically the longer the horizon and the higher the required rates of return push investors towards more growth-oriented assets like equities, though this is frequently accompanied by higher volatility especially if the time horizon is not sufficiently long.

One more leg to strategic asset allocation apart from top-down construction is placing due importance on security selection at the bottom-up level. For this, a requisite amount of due diligence needs to be done by the investor to ascertain each security’s risk-return profile and whether or not it is in tandem with the investor's own risk appetite and capacity. A mingling of fundamentals and valuations-related parameters needs to be looked at to gauge the suitability of the security vs.