With a wide variety of investment opportunities on offer, investors are often left wondering where they should invest their money. And the fact that a large number of money magazines, Web sites and investment advisors are offering advice on what one must do with money isn't making investors' cause any easier.

At Personalfn, we believe that investing, at its core, is a rather simple activity. If investors stick to the basics, they are likely to do well for themselves over longer time frames.

In this article, we present a 5-step strategy, adhering to which can help transform investors into 'smart' investors.

1. Have an investment objective in place

All individuals have unique sets of needs like providing for children's education/marriage, buying a car/house or traveling abroad, among others. Individuals must prioritise their goals and develop portfolios dedicated for achieving the same. Investing in an ad hoc manner could mean that investors fail to achieve their stated objectives. For example, if building a corpus to go on a holiday is a priority, then make an investment plan to achieve the same and invest in line with the plan in a disciplined manner.

2. Recognise the risk profile and adhere to it

Investors should be unambiguously aware of their risk profile while getting invested. And making investments in line with the same is vital at times. Broadly speaking the ability to take on risk reduces as one ages. Having said that, it should be understood that each individual has a unique risk profile and recognising the same should be the first step.

For example, two individuals with similar age profiles, but with disparate risk profiles is not an uncommon scenario. Investors need to invest in investment avenues in line with their ability to take on risk. Hence, a risk-taking investor is likely to invest mainly in instruments like equities and equity funds. On the other hand, risk-averse investors should hold a portfolio dominated by assured return instruments like fixed deposits and small savings schemes.

3. Don't ignore asset allocation

Asset allocation is a crucial exercise to follow while investing. Investing a large portion of the portfolio in the same asset class can prove to be a risky proposition. Diversifying your investments across asset classes like equities, fixed income instruments, gold and real estate among others is important.

A well-diversified portfolio helps investors spread their risk across various assets so that volatility in any one asset does not put the entire portfolio at risk because of investments in other assets.