Indians have always believed in saving their money. You might have seen your parents saving gold ornaments, deposits and cash for a rainy day. Perhaps these very assets would have funded your education, medical expenses or even your marriage.
But, today, we have found a variety of options to invest and multiply our funds. We have systematic investment plans, cryptocurrency, mutual funds, NFTs, stocks, startups, exchange-traded funds and more. We can invest in one or all of these.
All your investments can be futile if you haven't been smart while making them. Smart investments are the key to better returns and secure funds. There are a few things you should keep in mind before you go ahead and invest your hard-earned money.
Top 8 Smart Investment Tips
This article covers eight tips that will foster your achievement of financial goals and help you in making smart investments. They won't tell you “where to invest?” but will give the crucial answer on “how to invest?”.
1. Know Your Goals
Can you imagine a professional rifle shooter aiming for a bullseye without knowing the target? Not possible, right. Similarly, before we try to attain our financial goals, we must understand what we exactly want.
Now, this might be a debatable statement for many of you as there is nothing such as a lot of money so we don't want to lose on it by setting a limit.
So let me make it clear to understand, that we are not limiting the inflow of money but making the financial journey easy by setting up a goal. Once a goal is achieved, we have to look further for another.
Say, for example, you want to save money for your own wedding or a startup or anything big that you are planning to do. It will always be easier if you know an approximate amount that you are gonna need to meet up to your goals. By knowing it, you can then plan your investments wisely.
When you have a clear idea of your goals, you are less likely to invest in places that will hinder them. For example, if you plan on accumulating gold, you will avoid buying risky cryptocurrencies. Therefore, The first and foremost step before investing should be knowing where you want to go.
2. Emergency Funds
Emergency funds must be created before you start investing. They are your saviour on the day an unforeseen event occurs. They keep you prepared for the blow of a medical emergency, natural calamity, urgent loan repayment, quitting or getting fired, business losses or any other financial urgency.
An emergency fund is calculated by multiplying the number of months with your expense on necessities in a month. So your four-month emergency fund would be your necessities multiplied by four.
This includes loan EMI's, food, water, rent, electricity, medicines, etc. and excludes all the luxuries or desires like eating out, watching movies, Netflix subscription, etc.
These funds are a huge amount, so you'll have to cut down on your expenses and wants and also save any bonus amounts you receive. It seems difficult, but you'll be grateful for the funds when in plight.
3. Make Budgets & Analyze Your Expenditures
We all know the happiness of the salary credited message in the inbox. But rarely do we manage to run that feeling till the month end. In fact, there is hardly any money left to spend. Therefore, it's always better to plan your budget and keep track of your expenditure.
What does it have to do with investments? Well, a budget will help you put out an amount for investment every month without sacrificing your needs. You can cut on useless expenses and increase your long-term assets.
There are numerous other benefits of budgeting that directly or indirectly impact your investments. For example, Keeping your focus on your financial goals, saving up for retirement, keeping an eye on your expenses, setting aside an equal amount every month and finally, financial independence.
4. Financial Discipline
Discipline is one of the keys to success. Financial discipline gets you to invest regularly at fixed time intervals. When you set out a certain amount every month, you are likely to get a higher return.
It is likely that you might invest too much in a certain month and nothing for another seven months. This will break your investing routine. The longer you invest in the markets, the more you earn.
There are many benefits of regularly investing your money. An example is the lower impact of market fluctuations. This happiness because as you invest small amounts regularly, your buying price is averaged.
Also, your decisions are not under the emotional influence of buying when prices are surging and going into panic selling during the fall.
5. Diversify Your Investments
Never keep all of your money in one solitary place. If some unfortunate event is to occur, all of it will be gone, and you'll be left with nothing. It's better if you invest in multiple sources like stocks, bonds, gold assets, real estate, shares and debentures.
You need to keep your portfolio diversified. Imagine if all your money is invested in a single stock and its prices fall drastically; your finances will be miserable.
You can also hedge your losses. Hedging is a strategy of risk management where you take opposite positions in an asset. If the prices of one goes down, the other is certain to rise up.
It is not necessary that you hedge but you need to diversify your portfolio. You will be avoiding huge risks in the future and also won't miss out on great investment opportunities.
6. Set Periodic Goals
It is easy to say things like set goals, but normally all of us have many goals like even buying a mobile phone can be a goal as well as buying a house also can be a goal for some or maybe both in some cases.
So in these cases, we need to allot time to our goals depending on their price and priorities. Start setting your goals based on short-term, medium-term and long long-term.
Short Term Goals: While setting short-term goals, you must remember to prioritize needs over luxury. So, short-term goals can be for a couple of months, like 3 months or 6 months. It can be achieving a number, for example, five lakh rupees or also something like buying a bike or a refrigerator or anything that is not so expensive. While setting the goal, always make sure that you are sure that if you work hard and save smart, you can achieve the goal. So a realistic goal is necessary so that at the end of the duration, you don't doubt your own capabilities.
Medium Term Goals: Talking about medium-term goals you need to set duration from 6 months to 3 years, depending on your set goal. For this period, plan your goals that are high budget but not as much that you might end up emptying your pockets. The goals can be like achieving your 1 crore mark or buying a shop or a car. Always keep in mind that you are going to spend a big chunk of your money so make wise decisions and don't spend on something that will turn into your liability.
Long Term Goals: When it comes to the long term, we are talking about something you want to achieve after 3-5 or even 10 years. Normally people take their retirement, constructing a bungalow, or starting a new venture as long-term goals, but the goals vary from person to person. These goals mostly require you to take loans as the amount is huge, but if you give your money enough time to compound, you do not have to worry about these goals.
7. Make the Money Work For You
“The poor and the middle-class work for money. The rich have money to work for them”
The above lines are quoted by Robert Kiyosaki, the author of an international bestseller called “Rich Dad, Poor Dad“. He says that it's crucial to take control of your money and make it work for you. You should learn how to use your existing money to earn more money.
We all have some assets and some liabilities. Sometimes what you think is an asset might actually be a liability. For example, buying a car. You must pay for its fuel and maintenance as long as it works.
Whereas investing in real estate will multiply your money by simply existing in the right place. So, should you never get a car? Definitely, you should. The trick is to make your assets pay for your liabilities.
You need to be aware that not all investments or plans work for all goals. So let me explain to you how to invest and plan your finances, keeping your goals in mind. For short-term goals, you don't have to worry much.
You can simply keep parking your money in saving applications like savvy and multiple, as they also reward you with bonuses and interest on the goal you are setting. You can not expect many returns in a short duration.
Coming to medium-term planning, you must start a SIP ( systematic investment plan ) in direct equity mutual funds or mid-cap mutual funds. Instead of your money lying in your bank account where its value is depleting, it is always better to go for a SIP as it is safer than markets and offers a good interest rate.
As well as you can swing trade stocks in the market only if you have the knowledge. Swing or positional trades shall only be taken on the saved amount not exceeding 30% of the capital.
When it comes to long-term planning, we have loads of options, but when it comes to making good choices, not all options are great. For a long-term view, you must have a diversified portfolio.
The priority is to be given to SIPs, but here you must have equity mutual funds, index funds, and debt funds to ensure maximum growth and minimum capital loss.
Other than mutual funds, you must also go for investments in good and fundamental shares of blue chip companies, REITs (Real estate investment trusts), SGBs ( Sovereign gold bonds), etc., to have a good return while achieving your goals.
8. Clear Off the Debts
Credit cards, loans and bank overdrafts should be paid as soon as possible. We often try to put the payments on hold and enjoy the money we don't own. This results in stress, sleepless nights and investments you can't hold.
If you are investing, it's vital to ensure you've secured it. Assume you have purchased a plot of land, and now you've mortgaged the same for a loan. You know the consequences of not being able to pay back the loan amount. Not to forget the interest amount that's gobbling up the money you could've instead saved for yourself.
Clearing off the debts doesn't mean you live a miserable life where you're barely making ends meet. Make a plan where you can repay the money in an affordable manner.
Start small by deciding on making two regular payments, then four, then six and then finally all of it. A smarter way is to put the loans with higher interest rates on your priority list. There's also an option to consolidate your multiple loans with high interest into a single one with lower rates. So do your research and get rid of all the troublesome debts.
These are the tips you must be mindful of before getting in the investment area. Know that “higher the risks, higher the rewards”, but don't be ignorant and fall in a trap. Do your research thoroughly so you can bet on the winning horses. Happy investing!