Hype vs reality
Things to keep in mind and investing mistakes to avoid
- Fall and Rise is part of the equity market. Don't let the market volatility change your long-term investing plan.
- Keep equity, fixed income, property, and gold separate (avoid single NAV products).
- Selling 15% IRR assets (equity) to invest in 9-10% IRR assets.
- Keep insurance and investment separate.
- Not creating an emergency fund.
- Not focusing on liquidity & flexibility in investing.
- Avoid faddish investments.
- Exiting investments in panic due to market volatility.
- Avoid trading in stocks and F&O.
While you work for money, let the money work for you as well
How do you put that into practice? The answer is that you get someone who is professional to manage it for you.
No one can time the market accurately
What if it were possible to buy at the bottom and sell at the top? Many people have made numerous attempts but failed. That is the reason why experts advise investors not to time the market.
Don't ignore inflation
As an example, medical and educational costs are increasing at rates of 12% and 10%, respectively. Since inflation also grows at a rate of 6-7%, it is unlikely that you will meet your financial goals if your investment is growing at a rate of 7-8%. At those rates, only those with substantial active income will be able to meet the targets.
Taking unnecessary risks
It might also backfire if you take a needless risk to get instant gratification. The process of creating wealth would be uncertain if one only invested in small-cap funds for a higher return or bought a lot of debt-ridden real estate to make 2-3% passive income.
Unrealistic expectations from investments
The reason we take 12% returns in goal planning is that rather than concentrating solely on substantial returns, investors make sufficient investments to achieve their goal. Return on the top of that is value added.
Investment Thought Process
We suggest investing in assets that offer flexibility, liquidity, and the potential returns that outpace inflation. Imagine being unable to generate partial liquidity from investments or liquidate your assets for four to five months during an emergency.
Equity must be a part of your portfolio
In order to beat nominal GDP and reach your financial goals efficiently, equity should be included in your financial planning. Equity has historically performed better than other assets and is predicted to do so with the help of India's expanding economy. Although disciplined investment is always boring, it generates a significant amount of wealth.
Financials Planning
Financial planning is a proactive approach to creating a clear and achievable roadmap for reaching your financial goals throughout your investment journey. Your investment plan must reflect your current financial conditions.
Risk management
Risk management is highly important in investing. Based on your goals and profile, allocate your money in assets. Periodically reviewing your profile is important for investment restructuring.
Power of compounding
Investors are more focused on the return they make but not on the time they need to spend to make 50-100 times the returns on the investment at a certain rate.
Cost of delay
Early investing would help you efficiently reach your goals. For example, to make 1 crore, one would need to invest 10,000 per month for 20 years at 12% IRR. For the same 1 crore to meet in 10 years, one needs to invest 45,000 per month, which is 4.5 times higher.
Emergency Fund
Unexpected life circumstances, like losing your job or experiencing a medical emergency, might call for a change in your financial priorities. Similarly, it's natural for markets to rise and fall, and your earnings may fluctuate. A 10- to 12-month emergency fund should be set aside and kept in a liquid fund or flexi FD.
Avoid or reduce debt
Home loans (only for consumption) and school loans are examples of good debt, while credit card loans, auto loans, and other personal loans are examples of bad debt. Payoff as soon as possible or stay away from bad loans.