Our relationship with money is an all-weather one. It never gets disrupted by age. It is a bit like love. When you don’t have it, you yearn for more. When you have it, you realise that the story is not over. You always worry about the value of your money. As financial awareness increases, many people are looking to secure their future. There is a realisation of sorts that ‘money begets money’. But the most common query is ‘where to invest’. No matter where you are in the income group strata, you want to know the right place to invest.
Where to begin
If you have just started earning, you should pat yourself on the back for even thinking about investing. The fact that you have such a question means that you can save some money at the end of the month. Most people, who want to invest and make money, are unable to do so because they manage low or no surplus at the end of the month. The concept of emergency funds would be explained to you by a financial advisor as soon as you approach one. So go for it and start accumulating your emergency fund first. It could be merely a fixed deposit in your account or a liquid mutual fund.
Age is just a factor. After a few years of hard work and struggle, you have managed to create an emergency fund. You are now in a dilemma of things to do with the money. If someone says retirement, you may question the urgency to do so. However, it’s a good idea to think long-term and start setting aside some portion of your investment towards it. You can continue contributing to your liquid fund and begin a systematic transfer plan in a long-term diversified equity fund or a simple Sensex or Nifty index fund. Checking the track record of these funds is essential. It may be good to get professional help.
If you are in a situation where you are sitting on a pile of cash due to inheritance or sale of a property, you may have to evaluate your options carefully. There will be many people giving you advice. Most of them motivate you, and a few out of genuine concern. Hear them all, but act on none immediately. It is the stage when you need to add the weapon of knowledge to your armoury. You must dedicate at least half-an-hour in your life to your money every day.
The first thing to do is to get rid of all the debt in your life. Figure out a way to quickly retire credit card, personal loan and other liabilities. There is no point in allocating money to new assets by keeping old liabilities. You must think of this money as your wealth and focus more on protection and less on growth. Spread it across equity and debt asset classes in a way that the risk is spread across them. With money in hand, you can afford to take moderate risk.
Financial markets go through cycles. If you are willing to take moderate risk, you can sign up for a portfolio management service offered by a stockbroker or a mutual fund. There is a minimum investment criterion that they impose, but manage a pool of money. These schemes are registered under the Securities and Exchange Board of India’s Portfolio Management Service regulations.
There are other more straightforward options like spreading your money across multiple mutual fund schemes. When you are dealing with a more substantial sum of money, you have to protect your capital first. Your ability to take the risk is based on your future income. If you are young and have a pool of money to invest for at least 15 years, you must allocate more to equities. However, if you have received the money pool closer to your retirement, you may want to focus on capital protection and buy primarily fixed income assets. While physical assets like gold and property to make you wealthy, they give poor liquidity or returns. Financial assets are created and tested every day in the market. These could be equity shares or bonds or mutual fund units or derivative instruments. The key to investing is to own more financial assets and less physical assets to create wealth.
What you can do
The first thing to do is to get rid of all debts. There is no point in allocating money to new assets by keeping old liabilities
If you are willing to take moderate risk, you can sign up for a portfolio management service offered by a stockbroker or a mutual fund
Other straight options include spreading your money across multiple mutual fund schemes
If you are young and have a pool of money to invest for at least 15 years, you must allocate more to equities
But if you received the money pool closer to your retirement, you may want to focus on capital protection and buy primarily fixed income assets