A simple
example of investment is if you purchase an item for INR 1000 and subsequently
sell it for INR. 1500, you have achieved a 50% appreciation on your initial
investment. It is called an investment. An Investment is the process
of allocating money or capital to an asset or project with the expectation of
generating profits or returns over time. An investment is a tool to
generate income according to your goal or aim; it is an appreciation of the
value of your assets or investments over the time. It can be defined
to helping out to grow your wealth and secure your financial life or future. The
primary goal of investing is to grow the initial investment amount or achieve
specific financial objectives. People invest in various assets or securities,
such as stocks, bonds, real estate, mutual funds etc,. investors aim to achieve
higher returns compared to simply holding cash or low-interest savings
accounts. An Investment is defined as the commitment of current financial
resources in order to achieve higher gains in the future.
Based on our research, it appears that many individuals are investing not necessarily to accumulate wealth, but rather to sustain their standard of living. They seek to acquire luxurious furniture, modern amenities, advanced gadgets, smart TVs, smartphones, and more. These individuals prioritize enjoying life in the present moment, often indulging in weekly dining out and purchasing expensive clothing. However, sudden business or job losses can quickly lead to financial distress. In some cases, individuals find themselves in such difficulties that they contemplate selling their homes and even parting with their gold assets due to a lack of effective investment planning. It is always better to properly plan and set the investment goal.
It is always better to look for the guidance of an
expert advisor in order to achieve your financial goals. Expert advice,
thorough research, and their knowledge can significantly contribute to your
success. When it comes to investments, patience and consistency are key factors
in growing your wealth and attaining your financial objectives. Some
individuals may embark on investments energized by excitement, but later
discontinue their efforts or leave their investments unchanged due to a lack of
growth. Consequently, they often end up with a smaller return on their
investment compared to their initial input.
Investment
Objectives:
Investors seek to build long-term wealth and financial security by investing in assets that have the potential for significant growth over time.
Some investments, like bonds or dividend-paying stocks, are chosen to generate a steady income stream for investors.
Certain low-risk investments are preferred when the main goal is to protect the initial investment amount from significant losses.
Some investors engage in speculative investments, where they take higher risks in the hope of substantial short-term gains.
Always remember the following things, set your goal and plan accordingly.
- Emergency
Fund: It
should be very crucial to build an emergency fund. Aim to set
aside three to six months' worth of living expenses in a readily
accessible savings account. This fund will act as a safety net during
unexpected events, such as job loss or medical emergencies.
- Debt
Management: Evaluate
your current debts and formulate a plan to reduce or eliminate them.
Prioritize high-interest debts first and work towards paying them off
systematically. Developing a disciplined approach to debt management will
relieve financial burdens and allow you to allocate resources towards
other important goals.
- Retirement
Planning: Retirement
planning is a planning of your old age security. Contribute regularly to
retirement accounts such as 401(k)s or individual retirement accounts
(IRAs). Aim to maximize your contributions to take advantage of potential
employer matches and tax benefits. Consulting with a financial advisor can
help you determine the most suitable retirement savings strategy based on
your individual circumstances.
- Investment
Portfolio: Develop
a well-diversified investment portfolio tailored to your risk tolerance
and long-term objectives. Always consider a different stock, bonds, mutual
funds, and other investments. Regularly review and re-balance
your portfolio to ensure it aligns with your changing financial
circumstances and goals.
- Education
and Skill Development: Continuously invest in your education
and skills to enhance your earning potential and remain competitive in the
job market. Explore relevant courses, certifications, or professional
development opportunities that align with your career
aspirations.
- Real
Estate Investment: If owning a home is a goal, start saving
for a down payment and research affordable housing options. Consider the
costs associated with home ownership, such as mortgage payments, property
taxes, and maintenance expenses, when determining your budget.
Following
are the some basic mistakes done by investors
No Clear investment objective and plan :
If there is no clarity where you are going, chances
are to end up in the wrong place. This is one of the biggest mistakes
that most investors tend to make while starting investments, they do not have
their life objective or goals in mind when they invest. Most of their
investing is usually random and based on market rumor's or tips. To
meet your objectives or need, It is very important to short list your goals or
aim and make a financial plan wisely. Continue Ignoring or postponing
your objectives lost your grip on you financial plan.
Trading Too much :
Many people trade too much and do not reap the
benefits of long term investing and assets allocation. Repeated trading
and modification in investments usually lead to lower returns and higher
transactions cost. Buying and Selling investments may be fun, but if you
want to benefit from long term investments may be fun, but if you want to
benefit from long term wealth created, patience is the key.
Lack of diversification :
Different investments carry different types of risk
and return possibilities. Hence, diversifying your portfolio is very important
to insulate yourself from shocks in a particular assets class. Maximum
sufficient diversification in different assets can be helpful in assist to
create long term wealth.
Higher commission and fees :
Paying a higher commissions or fee will effect on
your investments in long term and will impact on the performance of your
portfolio. The brokerage fees you pay every year compounds along with your
investment returns over the time. It is very important to choose
investment plans that have less expensive ratios.
Chasing short term returns :
Without knowing the risk many investors care
calculates higher returns or yields on their investments. A high
yielding asset is a very tempting proposition but past returns in the
future. It is important to focus on the whole picture and not disregard
the risk you carry on your invests.
Ignoring inflation and taxes :
Investors are focusing on returns and not focusing
on real returns that is the actual returns from your investments, always you
have to calculate and plan along with inflation and taxes.
Do
Not Stop Investing
There can be several reasons why it
might not be advisable to stop investing altogether. Following are some
points to be considered:
Inflation: Over time, the cost
of living becomes high due to inflation. I remember that when I was young and
in school, the cost of vada pav, a famous Indian snack, was 75 paise. Now, it
is almost 30 times higher in price. You can clearly see the significant
difference. This trend can be observed in various sectors such as petrol,
edible oil, electronics items, education, hospitalization, and many other
things. Therefore, it is highly recommended to invest wisely and in a timely
manner. If you cease investing, your savings will not be able to keep up with
inflation. As a result, it's quite possible that your purchasing power could
decline day by day. By investing, you open up the opportunity to potentially
earn returns, enabling you to maintain the value of your wealth.
Long term financial goals: If you have long-term
financial goals, such as retirement or funding your child's education or
marriage, halting investments could impede your ability to achieve those
objectives. Mutual Funds, Real Estate, and Equities provide opportunities to
build wealth and secure your financial future. The market offers various
long-term investment options that you should also take into consideration.
Compounding returns: Investing
allows you to benefit from the power of compounding returns. By continue
investing or reinvesting, you can potentially earn returns on your initial
investments.
Risk management: By
investing in different plans, such as SIPs, stocks, real estate, and tax-saving
plans, you can diversify your risk and effectively manage it. If you cease
investing, you might experience losses and deviate from the path towards your
future goals. Continuously investing is a prudent decision to pursue in order
to achieve your goals.
Investment opportunities: By staying invested, you can take an advantage of various opportunities that arise, such as investing in small scale business, innovative ideas, real estate. Considering all these opportunities can offer higher growth in your wealth.
