Be Decisive While Investing Your Money

Today’s ever expanding investment universe allows investors to invest in a wide variety of investment options to suit their varied needs and risk profiles. However, only a small segment of investors has been able to make the most of these opportunities. There are a number of reasons that impact the final outcome of investors’ investment process over different time periods. In fact, even the impact on their portfolio returns varies based on when and how they invest as well as how soon or late they start their investment process. While some investors fail to accumulate the kind of corpus they require to fulfill their goals, there are others who don’t even start making their investments for the fear of either losing a part of their capital or earning very low returns.

There are also investors who don’t put in adequate efforts while investing their money. It won’t be wrong to say that while most of us work hard to earn, we do not show the same intensity and seriousness at the time of investing it. Though investing is a very simple process, a haphazard approach to investing can be suicidal. Remember, investing money requires planning, perseverance and time commitment. Here’s why you need to be decisive while investing your hard-earned money:

Take the Right First Step: Don’t begin investing without doing some ground work. There are three steps that can help determine an action plan. First, you must begin by making a list of personal and financial goals during short, medium and long-term horizon. For example, in the short term, you may want to buy a car; in the medium term you may like to provide for children’s education; and in the long run, retirement funding could be an objective.

Second, you need to assess your current position in the financial lifecycle. Third, you must decide as to how much risk you are willing to take to earn your targeted returns as well as what is your capacity to take these risks. This is critical as different financial objectives require different investments.

Balance Risks and Rewards: Many of us make the mistake of underestimating risk and/or overestimating reward from an investment. Remember, both of these can cause disappointment which may lead to some haphazard decision-making. That’s why you need to be careful about this aspect of investing. By estimating the risks associated with each of the investment options, you can improve your chances of building greater wealth.

Choose Your Investment Options Well: In an ever-changing financial environment, it pays to invest in smart options like mutual funds.  Though investment risks and economic uncertainties can never be eliminated, professionals managing your money in mutual funds can help you tackle them more efficiently. However, to benefit from their expertise to the fullest, it is necessary to invest in the right type of fund i.e. the one whose objective matches with yours.

Develop a Tax-Aware Investment Strategy: Many of us have the habit of investing in a haphazard manner to save taxes. That’s because we consider tax savings investments a burden rather than a tool to get the best in terms of saving taxes as well as making our money grow. There is a need to integrate these investments into your overall investment program. Besides, you need to adopt a disciplined way of investing rather than investing at the fag end of the year. By doing so, you can not only invest in the right options but also achieve your goal of investing on a regular basis.

After determining your overall exposure to equities, you can invest a part of it in Equity Linked Savings Schemes (ELSS) of mutual funds. Being equity-oriented funds these have the potential to provide better returns than most of the options under Section 80C. Another notable feature is the tax efficiency in terms of returns earned through them.

Keep Focus on Your Asset Allocation: Many investors show complete disregard to their asset allocation in a bull market. Obviously, in their quest to maximize the returns, the risks associated with the portfolio imbalance are totally ignored. While equities have the potential to outperform other asset classes, one must maintain proper asset allocation. In other words, re-balancing, either up or down, is a necessary ingredient for long-term success. Portfolio rebalancing is a process of bringing the different asset classes back into proper relationship following a significant move in one or more.

Another important aspect is not to lose sight of your long-term objectives. Remember, shifting focus on short-term goals at the cost of your long-term goals can expose you to serious financial risks. If indeed it becomes necessary to do so, you will do well to explore other possibilities rather than abandoning your long-term investment plan in a hurry.