Moneycontrol

Budget 2021

Associate Partners:

  • SMC
  • Samsung
  • Volvo

Moneycontrol

Budget 2021

Associate Partners:

  • SMCSamsungVolvo
Webinar :Join an expert panel for a webinar on Smart investments for a secure retirement January 28, 2021. Register now!

Take these smart steps to make your investments deliver superior returns

Irrespective of the asset class, using a steady and consistent approach to investing will allow your corpus to grow exponentially over a period of time

December 01, 2020 / 12:33 PM IST

Prateek Mehta 

We take numerous financial decisions on a daily basis. They may range from the seemingly trivial (what food to order) to the more significant ones (how to save for a mortgage repayment). Every decision, however big or small, has an impact on our financial future.

If you want money to work for you and become financially free, you will have to adopt an investment philosophy that leverages every opportunity to take you closer to your goals. Here are a few financial best practices smart investors should adopt.

Think long-term

Whether you are looking to build a successful career, raise a child or invest for the future, time and patience are key ingredients. Compounding is a powerful concept that has a multiplier effect on your investments. Irrespective of the asset class (fixed income or equity), using a steady and consistent approach to investing will allow your corpus to grow exponentially over a period of time.

Close

To truly benefit from compounding, it is imperative that you start as early as possible. It is not just about how much money you invest, but also how much time you give your money to work for you.

Invest based on your goals

When goals are clearly defined, with respect to how much you need to fund the goals, what is the time horizon, how much can you put aside, etc., it becomes easier to narrow down your investment choices after accounting for your risk tolerance.

You can create a series of smaller portfolios (such as child’s education or retirement planning) that operate independently and are insulated from one another. This approach allows you to manage changes easily, define the time horizon, and the manner in which you will invest and divest.

Also read: Let your life goals decide your investment mix, not market movements

Use a systematic approach to investing

A disciplined and consistent approach to investing is much better than deploying a lump-sum amount, especially when investing in direct equity or equity-based mutual funds. Not only does it make it easier to ride out market volatility, it also allows you to bring down the purchase cost of investment through rupee cost averaging. Not to mention using Systematic Investment Plans (SIPs) to invest in equity has been known to deliver superior inflation adjusted returns over the long-term.

Those looking to get to their financial goals in the safest manner, can invest in a low-risk liquid fund and the returns generated from the investment can be periodically reallocated via a Systematic Transfer Plan (STP) to an Index based fund. This move allows you to maximise compounding on your returns, with exposure to equity, while preserving the capital.

Also read: Time to take profits from investments and rebalance your portfolio

Secure your aspirations with insurance

Life can throw unexpected curveballs. The unpredictability makes having health and life insurance plans as important pillars of financial planning. The lack thereof will have huge financial repercussions.

Investing in a comprehensive health insurance plan ensures that you and your family members can get the best medical care without having to dig into your savings and investments which can set your goals back.

A life insurance plan, on the other hand, safeguards the financial future of your family and dependants in the event of an untimely demise. Not only does it help fund any immediate financial exigencies, it also helps supplement loss of income, and allows the family to pursue their shared future goals.

Find a trustworthy financial advisor

If you are serious about growing your wealth, then you have to leverage the expertise of a professional. Someone who has enough experience under their belt having managed a variety of investor needs across market cycles. More importantly, someone who has your best interest at heart and truly serves as a guide and not as a broker.

Alternatively, you can opt for robo-advisory that uses artificial intelligence (AI) to sift through hundreds of options and suggests investments based on strong empirical evidence. These platforms also monitor the performance of your portfolio and make recommendations to maximise return on investment, all from the convenience of your handheld device.

In closing

The journey to wealth creation is a long one, and there are bound to be hiccups along the way. Take help in choosing the right investment tools and stay disciplined. It is also important to periodically review your portfolio to maximise your chances of success.

(The writer is Co-Founder, Scripbox)
first published: Nov 30, 2020 09:44 am

stay updated

Get Daily News on your Browser
Sections