One of the most important life skills is to manage personal finance effectively. A well-planned investment, though prone to market movements, can help you sail through good and especially the bad times.
Today, online stock market investing is safe and superfast. You have plenty of options, and many new investment platforms are coming up with very interesting investment products. Both the SEBI and the RBI have shown progressive stances in bringing institution-like investment products to retail investors. Now, you can invest in debt, equity, derivatives, commodities, currencies, algorithm-driven trading, and so on any online investment platform.
While you invest, as per Connell Media, investing smartly is the key to building wealth and keeping yourself financially fit. Now you may ask, what is smart investing? Well, let us take a detour to understand this better.
When you invest, the objective is not to make a return on a particular asset, but to make a return overall. At the end of the year, your portfolio return should be, say, an ‘x%’.
Ideally, as an investor, you shouldn’t worry too much about which individual asset in the portfolio is giving that return to you. You would do all the research at the time of picking your portfolio constituents and allow time for the portfolio to grow.
Here are 5 smart ways to start investing money after getting an investment account.
There is enough literature and examples on the need to diversify and its benefits for obvious reasons. You can dramatically impact your overall portfolio risk vis-à-vis constituent assets. It helps you shield your portfolio by diversifying, which eventually helps you balance out the risk-reward ratio. Your risk appetite is a crucial factor while you build your portfolio.
Financial stress can come in at any unannounced time. Covid-19 took everyone by surprise. Therefore, your portfolio must have a good portion of investments in liquid assets. Assets that can be liquidated in a few simple steps are usually a good choice. If you can see the cash in your account within a couple of days, there is nothing like it.
While diversification helps reduce risk, sometimes you may get carried away by the promise of returns. Even the best investors are sometimes blindsided. Therefore, every time you add or rebalance your portfolio, take into account the risk an individual asset poses and if the assets are hedging (counter) each other’s risk or multiplying it.
4. Goal-based investment plan
Investments are often done to mitigate an upcoming capital requirement. It could be a vacation, a wedding, an education, or a new house/car. When you plan your investment with goals in mind, you can stay focused on the time you would liquidate the asset. This means less frivolous decisions and premature exits based on daily market movements.
Markets move daily. Asset prices react to macro and microeconomic conditions, geopolitical conditions, and so on. Hence, make it a point to rebalance your portfolio at a regular interval. This frequency need not be weekly or monthly, but rather a quarterly/half-yearly or even yearly exercise, depending on the goal of that particular investment in the portfolio