10 September 2021
Highlight: Are you planning on making an investment to secure your future? Before you begin investing, it is critical to consider a few factors such as investment objectives, risks involved, investment strategies, and so on. Learn how to invest while keeping all of this in mind
Investing your money may be (or rather, is) the most effective way to meet your future financial goals and build long-term wealth. While it can seem overwhelming considering the breadth of investment options available in the market, the truth is – without a proper financial planning process; your money is bound to go down the drain. In other words, you’re going to lose money simply by letting it idle.
As Warren Buffet once said, “Risk comes from not knowing what you are doing,” so there is a need to understand the basics and consider certain things before making investment decisions.
A well-planned financial process not only frees you from any financial worries but also helps you achieve your long-term financial goals. Now, there might be risks and uncertainties in any financial plan, but the ability to handle and deal with such uncertainties can help you make good investment decisions.
There are a number of investment options available in the market, from mutual funds and Fixed deposits to bonds and direct equity. However, before investing in any of these options, you should review and revise your financial plan to make an informed decision. In this guide, let us look at a few things that you must keep in mind before investing.
The first thing you need to consider is your household budget, as it will determine how much money you can put aside for investing. To prepare a household budget, you have to jot down all your sources of income, which may be your salary, rental income, interests, dividends, etc. Then you have to calculate your monthly expenses, which includes groceries, electricity bill, telephone bills, fuel bills, etc.
After you have a basic structure of your household budget, you can set aside the money you wish to invest for achieving your long-term or short-term financial goals.
One of the most important things to keep in mind before investing is your investment strategy or plan. A pre-planned investment strategy not only helps you identify your investment goals but when and how you can achieve them.
There is no denying that certain emotions can influence your investment decisions considering current market trends and high volatility. For instance, there may be times when you want to change your investment strategy, such as selling off your assets, because certain areas of your financial portfolio are not doing well. However, if your investment strategy is intended to be long-term, making rapid investment decisions based on short-term market fluctuations can affect your long-term financial goals. Therefore, it is recommended to plan an investment strategy and then act upon it.
You might want to consider different investment options when it comes to investing. You may choose to invest your money in shares and bonds or residential property. One of the benefits of diversifying your investment portfolio is efficient risk management. For instance, if one of your investments does not perform well, your other investments may help to level out your losses. Therefore, it is important to analyse and study different investment options before investing.
Before investing, you should know how much risk you are willing to take because some investment options can give higher returns than others, but you might have to face greater risk. For example, you can enjoy higher returns on mutual funds than FDs, but being market-linked, you can face a higher risk. Decide whether you have the risk tolerance for such investments; taking more risk than what you can handle can eventually make you stop your investment plan even before achieving your financial goals.
Once you have set your investment goals and plan, then you get an idea about how much time it will take for you to achieve the goals. You have to know the timeframe of your investment, whether you are setting long-term investment goals or short-term. Not knowing your investment time frame can jeopardise your financial future.
The intent to make an investment decision is good for a secure future, but it loses its purpose if you are not clear about the investment goal, tenure, or where to invest. So even before you start investing, it is always a good idea to consider certain things like why you are investing, your financial goals, how much risk you can handle, etc. These things will help reduce risk and set you up for success.
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