When you go shopping you’ll check things like the brand, quality, style, size etc. Similarly before deciding where to invest your money (deciding which asset class to choose from) you need to keep in mind so many factors.
However adorable those clothes in the kids section might be they just aren’t right for you if you’re in your 30s.
Just like that age is so important before deciding where you’re going to invest. Younger investors have fewer responsibilities and a long time horizon and that’s why they can take the risk. When they invest keeping in mind a long term view, they can continue increasing their investment amount with an increase in their income.
Experts suggest as a thumb rule that you should subtract your age from the number 100, and that’s the proportion of your money you should invest in stocks. The rest can be invested in “safe” investments like as FDs & Debt Funds. So a 20-year-old would have 65% of his assets in equity, while a 60-year-old should have 40% in equity.
Depending on the purpose of investing you can select your asset class. For example if you wish to invest for your children’s marriage then those are long term goals. But if you wish to invest for a car that could be a short term goal. For a short term goal, you should opt for a safer investment and for long term goals use the return- generating potential of equities.
Other than time duration basis, the purpose can also be classified as negotiable and non-negotiable. For non-negotiable goals like children’s education or down payment for a house, guaranteed return investments would be a good choice. But if the goal is negotiable, which means that it can be pushed back by a few months, then investing in equity mutual funds or stocks can be beneficial.
This is very similar to your shopping impulses. There are some things that you can afford to push buying for a few months while some things are not negotiable at all.
How we all wish we could buy that Lamborghini sponsored by our bank balance.
When it comes to investing its really important to consider how much income you can spare to invest. This is because investing in risky asset classes means there is a chance you’d lose all your money and there is also a chance you might make lots of money.
If you want higher returns the risk involved is also high. risks are directly proportionate to returns (Higher the risks means higher returns) blatantly putting it: The richer you are the more risk you can take which means you can afford to invest money which means higher returns.
That’s why consider your income and also don’t forget to consider your expenses. You might have a big ass salary package but your expenses like loan payments would be high too. At such a time you need to see how much of your income can be put aside to invest after taking into consideration all your expenses.
From the above factors, it is clear that different individuals will have a different portfolio depending on their age, income, risk capacity etc. But the common factors apply for all:
- Before investing do adequate research
- Don’t fall for different schemes that promise high returns in a short span.
- Check the tax implications on your investments
- Avoid complicated investments like Bitcoins.
Ready to pick your asset class? For further questions comment to let us know.