Tips to Plan Investments Wisely
Below given are things to consider before planning investment.
Analyze Need for Liquidity and Finances: Understanding liquidity needs requires simultaneously a sharp mind for investment, without which, it would be harder for anyone to amass wealth given the inflation and changing rates of interest on investment tools. First and foremost, a person has to analyze the state of his finances right now. Does the individual have an emergency fund of at least 6 months as savings? Are these any existing debts or liabilities?
Keep Funds Aside: Secondly, one has to prioritize finances and investments as per the current financial situations. A person may want to invest consistently over time in case the amount is small, however, it must not be on the cost of leaving no cash for managing household expenses, because the latter is also important. Thus, people have to realize the difference between investment and the right time for the same.
Investment or Credit: Thirdly, understand that for what reasons and tasks there is a need for money. Sometimes in dire situations, it is better to liquidate investments than taking credit, and vice-versa. For instance, recently during Kerala floods, many farmers sold off their gold jewellery than taking a gold loan for meeting their expenses for home repair, and putting back life together.
This could have been a difficult decision for many as gold is a good investment, but if the situations are tough one may have to calculate which a better option is, liquidating investment or using credit.
Diversify Portfolio: A crucial factor to note is how diversified are the investments. It is ideal never to put all eggs in one basket. It usually translates to investing in different sectors, assets, companies, etc, on different time-frames. Diversifying investments aid in insulating against market fluctuations. Short-term investments offer opportunities to regain foot and long-tenure ones are the most powerful, something that one is sure about to fetch maximum returns.
Take Thoughtful Decisions: Every investment decision comes with pros and cons. How successful one makes it to be depends on how large is the upside compared to the downside. A certain level of risk tolerance should be present in every wise investor. It is never a good decision to predetermine liquidity without adhering to facts and knowing as to what is happening out there to the investments. It is best to assess comfort with risk, time and again. Giving up investments readily or getting into the same, both can be harmful without prior homework.
After analyzing all the above-mentioned pointers, it is time to calculate the tax implications when one sells an asset. It is said that high-risk assets are better for long-time frames and vice-versa. One must plan for cash needs at least a year to year and a half in advance, so that the decisions are thoughtful and not prompted out of emotions. It would also give enough time to study the market fluctuations and investment trends and plan a concrete investment strategy.
It is a known fact that market can go up and down anytime. The turbulence is something that is not exactly unexpected until and unless there are special events causing a sudden fall or upsurge. An investor or investment manager must keep his eyes open and plan than setting off to a ‘panic selling’ mode. As long as there is a proper plan in place and the investments are aligned accordingly, people will be able to sort their finances for emergencies, savings, and growth in a much informed manner.