A lot of people I know are very confused about how to go about investing
their money.Usually they end up investing in a very random manner.This
can leave you feeling very disillusioned,especially if the investment
has lost money in the short term.
A lot of people might be undergoing this feeling of disillusionment right now considering how the market has tanked and how people have lost half their wealth in a matter of months.
I wont go into the details of investment planning but will give you general rules of thumb.
1) Have objective short,medium and long term financial goals."I will buy a car in an year." , "I want to go around the world in about 6 years ", "I want to own a restuarant when i am 50" and so on.You will have a fair idea about much money you need to have when the time comes and what exactly are you going to do with it.Once you know how much money you need you can plan much better and achieve your goals far more easily.
2) This is how you should allocate money :
a) Short term goals - Here "Cash is king". Any money you might need within a year or 18 months better be there in your savings account.There is no way you can risk losing your money by investing it in equities and although short term FDs,bonds etc are available the returns over an year will be very nominal and you wont have liquidity.
b)Medium term goals - Invest in FDs,NSCs,government bonds et al. Basically you cant trust stocks over the medium term too and you would do well if you stick to sure shot returns.So if that world tour costs 5 lakhs,assuming a return of about 7% for your investments you would need to invest about 3 lakhs for a 6 year period.
c)Long term goals - Now the fun part begins. Nothing, just nothing beats equity over the long term.If you really want to make your investments work for you,stay invested in equities for a long long time and you'll end up a rich man.To give you an example,if you start investing Rs. 2000 in a monthly SIP exclusively for your retirement(say after 30 years) and you stick to this simple SIP all the way.Assume a return of about 15% per annum,which by the way is conservative considering India's growth story,when you retire you'll have,any guesses? :
Rs. 1,40,19,641
That's right,about 1.4 crores for an investment of 12 x 2000 x 30 = 7.2 lakhs.
That restaurant does'nt look that elusive now,does it.
That is the power of compounding and the power of equities.No other asset class can give you returns averaging around 15% for an extended period of time.
Moral of the story - Don't trust stocks with your money over the short/medium term.Invest in stocks only that money which you won't need for a long long time.And you won't be disappointed with the results.
A lot of people might be undergoing this feeling of disillusionment right now considering how the market has tanked and how people have lost half their wealth in a matter of months.
I wont go into the details of investment planning but will give you general rules of thumb.
1) Have objective short,medium and long term financial goals."I will buy a car in an year." , "I want to go around the world in about 6 years ", "I want to own a restuarant when i am 50" and so on.You will have a fair idea about much money you need to have when the time comes and what exactly are you going to do with it.Once you know how much money you need you can plan much better and achieve your goals far more easily.
2) This is how you should allocate money :
a) Short term goals - Here "Cash is king". Any money you might need within a year or 18 months better be there in your savings account.There is no way you can risk losing your money by investing it in equities and although short term FDs,bonds etc are available the returns over an year will be very nominal and you wont have liquidity.
b)Medium term goals - Invest in FDs,NSCs,government bonds et al. Basically you cant trust stocks over the medium term too and you would do well if you stick to sure shot returns.So if that world tour costs 5 lakhs,assuming a return of about 7% for your investments you would need to invest about 3 lakhs for a 6 year period.
c)Long term goals - Now the fun part begins. Nothing, just nothing beats equity over the long term.If you really want to make your investments work for you,stay invested in equities for a long long time and you'll end up a rich man.To give you an example,if you start investing Rs. 2000 in a monthly SIP exclusively for your retirement(say after 30 years) and you stick to this simple SIP all the way.Assume a return of about 15% per annum,which by the way is conservative considering India's growth story,when you retire you'll have,any guesses? :
Rs. 1,40,19,641
That's right,about 1.4 crores for an investment of 12 x 2000 x 30 = 7.2 lakhs.
That restaurant does'nt look that elusive now,does it.
That is the power of compounding and the power of equities.No other asset class can give you returns averaging around 15% for an extended period of time.
Moral of the story - Don't trust stocks with your money over the short/medium term.Invest in stocks only that money which you won't need for a long long time.And you won't be disappointed with the results.
Managing your own money is a difficult thing but if you learn this skill, you would surely be able to have a secure future. My dad also taught me how to plan finances but now I am interested in making good money with some investments so seeking professional help from a certified financial planner for the same.
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