Having investments is an excellent pathway to build up your wealth or retirement portfolio. However, we often tend to overlook some points in a haste to build our wealth. These hasty decisions often end up being harmful to our corpus accumulation. So, here are some things that you need to pay attention to before planning your investment goals.
Understand your financial status and goals:
Before going for any kind of investment, you must understand your financial standing. Knowing the exact amount of your monthly income and expenses will help you in devising a budget. The balance amount which you have aside from your expenses is your savings. That is the amount you need to use for your investment goals. However, before you go investing, make sure you have an emergency fund for sudden expenses.
When it comes to financial goals, you need first to set a timeline of whether it is a short-term, mid-term, or long-term goal. In case you are saving for your child’s education or marriage, you need to choose a long-term family investment plan. If your goal is to buy a car, then mid-term investment plans would be a better fit.
Your age matters:
One of the most vital factors you need to consider before investing is your age. The younger you are means you have more disposable income, fewer responsibilities, and can wait for your investments to reap the rewards.
But, as you grow older, you need to account for the factors of family, retirement planning, children’s expenses, marriage, and so on. Moreover, you also cannot wait for long periods for your investment to bear fruit. This is because the power of compounding is more when you invest early when compared to delayed investment plans.
Know your risk tolerance:
The general thumb rule of investment is that the higher the risk, the higher the return on investment. However, not all individuals have the same risk appetite. Most often, it differs based on individual financial status and goals. Once you assess your risk appetite, you can go for investments that will be suitable for your financial goals. For example, if you have a high-risk appetite, you can go for stock market investments. If you have a mid-risk appetite, you can go for stable investments like opening a fixed deposit account.
Decide your timeline:
Everyone’s investment goals are not the same; some invest for retirement, while some invest for wealth accumulation. Therefore, another thing you need to consider before investing is the timeline your investment will reap its rewards. The longer you stay invested, you getter better returns (but there is a considerable amount of risk involved) since you can manage your losses.
In case you don’t have enough time for your investments to mature, then you can go for investments that do not carry risk and give stable returns. Also, you need to take into account if there are any penalties or charges involved while you liquidate those investments. You need to factor in how those changes will affect your profits. If those fees and penalties are mandatory, make sure that you don’t require the money before the lock-in period. Calculate your tax implications as well when looking to redeem your investments.
Understand financial products:
There are many financial products today in the market with many features and benefits. But their workings are quite complicated in nature, and it is difficult for the common man to understand. So, it is vital that you know the products before investing in them. Knowing them will help you in choosing the product carefully. Also, you need to consider the factors of your age, income, savings, and so on before selecting the product. For example, if you have just started your investment journey, you can invest in fixed deposits, mutual funds, and so on.
Know your investment objective:
The next thing that you need to consider before investing is determining your investment objective. If your goal is keeping your money safe, then you can go for stable investment options like Shriramcity fixed deposits or corporate bonds. If you don’t mind taking some risk, you can go for higher return investments like shares or equity funds.
Diversify your portfolio:
Investing in a mix of high, mid, and low-risk investments can help you in achieving optimum returns. Historically, there has never been an instance where all three types of investments have performed poorly. The usual situation is where if one asset performs better, the other goes down just a bit. So, by investing in more than one kind of investment, you will have a portfolio that will balances the risk and returns.
Moreover, you also need to appropriate asset allocation for you to achieve your financial goals. If you choose only low-risk investments, then you won’t get enough returns for your financial goals. So, it is better to have a mix of investments that will give you optimum profits. For example, maybe you want to invest in real estate but also see an opportunity in automotive private equity as well. Why not go after both, if you have the means to do it?
Having a diverse portfolio is a smart financial decision for your goals. But, the key is not to over-invest so that you lose sight of your objective. Too many investments will become difficult to track and monitor its progress. Moreover, when it comes to taxation, you might face difficulties in filing your returns.
Too many investments also hinder your profitability analysis and decisions of liquidating or renewal of the investment. So, it is better to take professional help when planning to expand or revise your portfolio.
Know what impacts your investments:
There are many factors like inflation, tenure, invested amount, tax impact, and rate of return that influence your finances. You need to consider and analyze all these points to get optimal returns. For example, both taxation changes and inflation have their share of impact on the market cycle. Always ensure that you have an emergency fund aside from your investments to fund your sudden expenses.
Going through these points will help you in making prudent financial decisions for a secure and comfortable future. If still in doubt, enlist the help of a professional to make sound monetary decisions.