Rummaging through some old boxes at home, I found some of my childhood things. Pictures, clothes, toys and most importantly one of my favourite things: an old piggy bank. This piggy bank was one of my most cherished companions.

Every time I found some loose change around my house, I would put it in the piggy bank, or whatever I earned something, from doing odd jobs, I would put it in my piggy bank. And once it was filled, which was not always soon, I would open it and collect all my money and buy whatever would be my most desired object at the time. My reason for collecting and saving money had only one purpose, to buy something I wanted and nothing wanting to ask my parents to do it for me. But I still made sure that I got want I wanted the most.

As we grow up the way we view our needs change. Our goals and dreams have changed, so has the way we view its importance and how we achieve it, including the way we “save” our resources.
Investments: your new piggy bank.

Investments are what we look for when it comes to fulfilling our dreams and goals. There is more to investing than just locking some of our resources. Investing has a few aspects that need to be taken into consideration. The most important is the goal. It is imperative you understand the basic need or goal for investment. Though you may think that no sane person would invest without understanding their goal, this situation is known to arise.

A client of mine, before coming to meet me, had invested a large sum of amount for his children’s education and for a vacation he was planning to the Unites States. When his son finally entered college, he unlocked the amount he had invested and paid for his son’s college. However, after that he realised that there was not enough money left for him to go for his trip and had to start all over again. Get your goal clear in your mind or with a certified Financial planner, and then find the right tool of investment.

Another important aspect you need to understand is the time frame you want to have that particular investment for, and when you would want to see your goal fulfilled. Not all investments mature in a period of two years, as not all goals can be fulfilled in two years time. Roughly speaking, investments that need to mature in1-3 years, at the minimum are considered to be short term and the ones that take upto 10 plus years are considered to be long term ones. However, this also depends on your goal that has to be fulfilled and over all investment profile.

Tools for investment

Many of my clients often tell me that they get so caught up by the jargon on investments; they get “put off” by them and avoid investing in the same. There are various tools of investments that you need to be sure of before you go and invest your much earned resources.
Equity/ Share market one of the known tool of investments are stocks they are long term in nature and have volatility built in “High Risk High Returns”. Investments can be done on the basis of large, mid and small cap stocks or in terms of style i.e. Growth, Value, Blend. It’s advisable that a retail investor should ideally access equity markets with help of expert like Mutual fund managers to simplify and optimize his returns.

Another investment that helps out for are Debt/bonds. Considered to safer than stocks; companies, government etc issue bonds as investment options. Debt investments in asset allocation add safety and stability to portfolio in comparisons to equity. While investing, ask your planner which is the best option among bonds that you can choose, as each need and goal would require a different option, since some of your goals would have a time frame of 1 year to many years. Maturity dates will vary as per your need and source of investment.

Other investment tools would also include opting for real estate, commodities derivatives, etc. Never blindly invest any sort of tool. Understand that every method has its share of risk involved and your Financial planner can help you understand the fine print that comes with it.

Risk appetite is important

Every investment has a risk factor. This is the most important aspect of investments, and every investment you make will have a risk factor. No matter what kind of investment you choose for any goal, it is vital to understand the risk appetite of them.  The aspects that will help you understand this and the tool to use lies in safety and time of the goal. Every investment will require a sense of understanding of safety and time -

•    Short term Goals 0-3 Years need to be planned keeping in mind risk and short term volatility which can be managed with high debt exposure and no or minimal equity. In these goals safety of principal is paramount.

•    For Goals of 3 -5 years moderate portfolio i.e. balance between debt and equity is ideal as it will help in generating better risk adjusted return.

•    For long term goals of 5 year and beyond one should look at more allocation to equity and also Gold through ETFs

The principals to be used while choosing tools of investment are.
@ Prioritize your dreams into relevant doable goals with amount needed, years to it.
@ Understand the how much risk you can take to accomplish that goal with relevant asset class this should ideally be done on basis of time to goal.
@ Based on above 2 create mix of equity, Debt, Gold and keep regular monitoring to achieve optimal returns over the goal tenure.

To keep it really simple have Certified Financial Planner who will help you do this and monitor the progress for you.

e-mail: Sumeet Vaid

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