Investing is an art, and smart investing is a science which requires research and analysis on where to invest your hard-earned money. To build a smart portfolio, one has to take consideration of short-term as well as long-term financial goals and invest strategically to meet those needs. There are a lot of things you have to keep in mind while investing like risk factor, interest on returns and the tenor. All these factors combined help you decide the best investment options and thereby build a smart investment portfolio.
Most people often misunderstand investing as a way to earn quick and more money which is so not correct. Investing is much more than quick and more money. It is a way of building and growing wealth over an extended period by a disciplined and regular investing approach that aims to meet your financial goals at different stages of life.
A smart investment portfolio is the one which is balanced and diversified and aligned with your financial goals with the philosophy of ‘keeping it simple. ’ No one wants to lose their hard-earned money and hence a little knowledge and careful research always goes a long way.
Let’s have a look at some guidelines that might help you get started in building a smart investment portfolio. Here are factors you should consider before investing.
Table of Contents
Set your Financial Goals
The first step is to know your goals which can be short-term (buying a house) or long-term (post-retirement phase). The investment strategy in both cases – 5 years and 20 years from now would be different according to the end goals. Also, when planning for 20 years, you must keep in mind the inflation as well as the future cost of living which might be much higher than today’s. For smarter future planning, one should consider investing in PPF or PF as a starting point of investment.
Once you have set your financial goals, the next step is to decide on your asset allocation based on your risk appetite. Asset allocation is about determining how much of your money goes where in the investment portfolio. There are various types of asset investments – bonds, shares, cash, and property while many prefer investing in mutual funds too. Diversifying your investment portfolio through planned asset allocation would help you decrease the risk. If you have a higher risk appetite, investing in shares might be a good option else for lower risk, government or corporate bonds is the way to go.
Always remember the golden rule of investing – Higher the returns, greater is the risk. Diversifying not only mitigates the risk factor but it safeguards your money as well.
Pick Right Investments
As there are a plethora of investment instruments available, selecting the right ones becomes of prime importance. You can take the help of a financial advisor or seek professional guidance based on your financial goals.Equity-based investment is often advised in the form of holding stocks though it involves higher risk.Mutual funds like Vanguard Small Cap Index Fund, on the other hand, offer easy liquidity by allowing them to sell shares even in a short period.. For conservative investors, debt funds can be a good option to consider. There are different types of Bank Accounts in India like FD, RD, SCSS, Mutual Fund, SIP in which you can invest according to the Risk and return.
Discipline and Regular Investing
Nothing holds true when it comes to investing. A regular investment not only builds your portfolio but grows your fund too. Regularity will also help you build dedicated corpuses for major life events. This way you can be in constant connection with the market as well.
Review your Portfolio Periodically
In a lot of investment instruments, it is ok to invest once and then forget it for a certain period. Though it is true, a periodic review or monitoring should also be a part of the plan in order to know how well your finances are growing.
You might have heard this saying – ‘Do not put all eggs in one basket’ and rightly so when it comes to investing. Always remember to diversify your eggs in various baskets.