We are always biased towards the investments we make. Thanks to internet, one can access different investment avenues and gather all information related to it and also initiate the transaction. But investing is not always about ease of doing it. There are a lot of factors which needs to be understood before making a move.
Here are some tips to become a better Investor:
1) Work on your Risk Management
To begin with any investment plan , you should first ensure all the basic risk (Life, Health, Accidental and Job loss) is been taken care of. First buy a term insurance, health insurance and create an emergency fund to ensure that your investment plan does not go off track in any of these risk occur. Risk management should be the first step towards planning towards future goals and making an investment decision.
2) Goal analysis
Goals are just your dreams with a deadline. It’s vital to know why you are investing before you start. Either you want to retire early? Want to plan for Kids education? Want to travel for vacation? Want to plan for marriage? Think about your financial dependants and financial commitments you have while investing. These goals would define the investment options. For example, if the objective is to buy a car in 1 year then the investment would be debt based instead of equity. Other factor relating to goals is evaluating it. Car worth 5 lakhs today would cost different after 2 years. So one should also ensure the goals are rightly evaluated before planning.
3) Risk Appetite
Risk is subjective. A 25 year old professional may not be aggressive whereas a 55 years old Retired person may want to take higher risk. There is a traditional mindset that the more younger you are, the more aggressive you should be. But every young guy may not be an aggressive investor. Some may want to have a need of safety and stable growth in the investments. There are various risk appetite analysis tool which can help you identify the risk capacity.
Key to a successful investment is to diversify it so that the risk can be managed effectively. We often make a mistake in diversification of investments and end up overlapping in similar type of investments. For example, using PPF and EPF as a retirement tool. Now both has similar returns, are a fixed income savings schemes, has specified returns and tenure. So investing in these instruments is not diversification. Diversification means investing in various asset classes (Debt, Equities, Commodities, International Markets) to make your investments more effective and less risky. Spreading your investments would reduce the chance of one investment sinking in your entire portfolio.
5) Be Patient, Stay focused.
Rome wasn’t built in a day, same goes for your investments. Power of compounding works but it takes some time to show its effectiveness. The investments made for long term may not start yielding returns in one or two years. It may take 4-5 years for them to show results. It’s all about waiting for the investments to grow. The more patient you are, more richer you would be.
Often people are tied up with their work routine and do not have enough time to focus on their finances and end up making financial mistakes. Hire a Financial Advisor or a Certified Financial Planner who can take care of overall financial aspects and recommend you right option to deploy your savings. A Robo Advisor like ArthaYantra can be an ideal bet for you if you are a busy working professional.