Smart way of planning to achieve Investment goals

Smart way of planning to achieve Investment goals

“It took 5 years for me to learn the art of making Money and it took 25 years for me to protect it and multiply it,” says a Financial Consultant. “Money does not grow on trees.” Is a normal saying amongst us. It is also true that making money is very difficult. More difficult is the safe-keeping and improving it. Needless to add that Financial planning is a must for all-whether you are a Doctor, or lawyer or An Accountant or Teacher or Businessman et al.

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Three important thumb-rules governing Investments are Safety, Liquidity and Profitability (ROI).

Investors, at least some of them, have an apprehension that Equity investments are prone to risk since the Equity markets are more volatile than fixed Income securities. However, over a longer period of time, equity does provide higher returns and capital appreciation. It is important for the investors to look at proper asset allocation based on their long-term goals and not take any decision based on day to day market movements. How the market moves over a period of time is the factor to be taken into account. The Present Index of the NSE/ BSE is a big testimony for the upward movement of a certain group of shares says for the past 5 years. The Index has jumped by over 3000 to 4000 points which is a reflection of the upward movement of the value of shares.

Asset allocation helps an investor to build well-diversified investment portfolios that aim to deliver good returns with least risk and inflation-adjusted returns. Such a strategy will reduce risk during market volatility and balance the return as different asset classes perform differently across different time periods. Company Shares which are in the NSE and BSE Index ( 50 and 30 respectively) will give us the stable and steady returns over a period of time say 3- 5 years, much better than fixed income category because of capital appreciation.

Shares in the midcap and low cap have given good returns but at present these shares are available at the half rate compared to their 52 –week high rates. A prudent investor will now have to do what is called ‘bottom-fishing’ and create a portfolio. So it is time to do some due diligence, have a checklist of investment criteria and run the process as per goals.

Investors could be successful if they arrive at a suitable asset allocation, after carefully studying their investment goals, financial needs (every now and then) risk tolerance, time horizon and above all Tax implications. Equity Investment does give far superior returns than others if one does a careful analysis of risk and return. An investor who can continuously invest some amount say, Rs. 5000 p.m for 25 years for the retirement or for any other objective like marriage etc., can certainly get a lump sum with an expected return of 15- 20 %.

The thumb –rule for equity mix is 100 minus your age.

E.g if age is 30, 100-30= 70 % can be invested in Index, mid cap and others for a period of 10- 20 years. People who have no time and resources to track the marker regularly can invest in well- run Mutual Funds with a track record. Periodic review of the portfolio is a must and switching on and off will be advisable by booking seen profits without being greedy.

Wish you al a happy and profitable investment!

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