Many salaried, working class individuals or self-employed professionals like doctors, engineers, architects etc., usually do not make proper investment decisions. They are afraid to take risks and put their hard earned money in some good financial instruments. The most preferred mode of investment is to put their money in fixed deposits. However these Investments will not be able to get returns which can cover even inflation.
Most of us have heard or experienced past wrong decisions and hence are fearful of venturing into a proper investment scenario. Today, there are many investment options available in the financial markets and you can avail of the finest financial analysis to make an informed and educated decision. Here again we find that there is too much of information and choices, leading to confusion and fear in making the right choice.
Today, most families have dual income and most of them are high Net Worth individuals in the age groups of 40 to 60 years. The growth in the Indian economy, increase in family income and better savings have led to surplus funds, which can be appropriately used to multiply the income. Most of these individuals are educated and understand the risks and time taken to generate wealth.
- Some of the key things to be kept in mind while making a good investment decision are listed below:
- Do not get too influenced by past mistakes.
- Keep your Investment decisions simple.
- Make an Annual Investment Plan based on your risk appetite.
- Make a financial plan
Some of the key things to be kept in mind while making a good investment decision are listed below:
Do not get too influenced by past mistakes.
In today’s technology driven world, we have many banks, brokers and financial advisors who are experts and specialists in their fields. They can understand your financial capacity, risks and can advise you appropriately. It is good to take the advice of these experts but at the same time you need to understand the details of all the options being recommended to you. Finally it is your money and you need to get involved in understanding how your money will be put to use for better returns.
Keep your Investment decisions simple.
It is important to understand your total inflows and outflows of funds and your savings. If you are disciplined and regularly save more than 40% of your earnings, then you need to find different ways to get these funds invested appropriately.
Choose your investment decisions on the basis of the risk and returns. Here your financial advisor will give you around 4 or 5 options annually to invest in. Study these options, which should include the detailed amount to be invested and the final amount to be received after the tenure is over. Understand the tax implications and the other aspects in detail.
Make an Annual Investment Plan based on your risk appetite.
Mutual Funds and Stocks
Most of the people are averse to directly investing in the stock market. The other option is to choose the monthly SIP plan of Mutual funds. In Mutual funds, you have the expertise of the fund manager which details the risks involved, which you can study and then look to invest in. Do not go by the immediate performance of the fund but also look at the past records and the long term performance of the fund.
Bonds and Debt instruments
These are less risky investments but they have a fixed tenure and so are not highly liquid. Also ensure that the companies that you invest in are managed efficiently. Always keep a balanced percentage of investments in different asset classes to spread your risk.
If you are planning to invest in real estate, then clearly identify the properties, their investment value, the rate of return and other factors. Make your decision on the basis of your needs and the funds that you have. Avoid investing in properties which will be difficult to sell and which will not give you any returns.
Make a financial plan
The purpose of an investment plan is to identify your goals and the path to be followed to achieve those goals. This can be broadly done in three steps.
Understanding your Net Worth
Your net worth is your total assets – total liabilities.
Understanding your Savings potential
Your saving is your total income – total expenses.
A positive saving potential indicates that you can invest your money and achieve your financial goals. You need to find ways to reduce your expenses or increase your income.
Understanding your financial goals
It is important to have clear financial goals before you start investing.
Some of the financial goals which You need to have are listed below:
- Create a contingency fund to take care of emergency situations.
- Adequate life insurance to protect your spouse and your children from any future financial difficulties.
- Children’s higher education funds.
- Children’s marriage funds.
- Your retirement planning.
When you make a plan for your family ensure that each and every member of the family is involved in the plan wholeheartedly. It is also important to get your children involved in savings and other money management tools, which will help them in the future.
These are small steps which can help you in making good investments, resulting in good returns.
Please read our earlier article on Mutual Fund investment.
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