We believe that investing at its core is a rather simple activity but requires a lot of discipline. At the same time as investors you ought to exercise caution and act responsibly while making any investment decisions. Through this article, we present a few points which one needs to take into account to transform into being a smart and a wise investor.
1. Have an investment objective in place
While we all invest with the sole objective of wealth creation, it is vital to reckon the unique financial goal for which we are ploughing in our hard earned money today, to reap benefit in future. All of us, in our life cycle have different financial goals- they could be buying a dream home, car, travelling abroad for leisure, children's education needs , their marriage and even one's retirement needs. But in order to achieve these goals, it is imperative to prioritise them and develop an investment portfolio depending on your age, income, existing liabilities, appetite for risk and nearness to your goal. A systematic and discipline approach to investing is far better than investing ad hoc, as by doing so your portfolio would be structured with those investment avenues which suit your need(s).
Remember to define and set clear goals; happy go lucky attitude may not always work for you.
2. Recognise the risk profile and adhere to it
As an investor, it is necessary to be clearly aware of appetite for risk (commonly known as risk profile) while making any investment decision. Broadly speaking the ability to take on risk reduces as one ages. Thus, it should be understood that each individual has a unique risk profile and recognising the same should be the first step. For example, there could also be two individuals of the same age group, but are having dissimilar risk profiles. For one despite the age permitting him to take high risk, there could be other facets such as income, existing liabilities, etc. which could refrain him from taking high risk. Thus for one, exposure to risky asset classes such as equity could be high, while for the other, due to appetite for risk being low, could be exposed to more low risk asset classes. Thus investors need to invest in investment avenues in line with their ability to take on risk, by evaluating facets such as age, income, existing liabilities and time horizon for which one would like to stay invested.
Remember the age old proverb, 'Live within your means'; do not go overboard and invest in asset classes whose risk profile does not match with yours.
Related News
Risk-return relationship: High return is the risk premium Would falling rupee make bank FDs attractive?
No comments:
Post a Comment