There are many investment avenues by which most of us are aware of property, gold, bank deposits, shares, mutual funds etc. Within each is a complete jungle of options. This is the reason why many investors struggle in choosing the right option. The obvious result is that the most persuasive salesperson we meet is the one who decides our financial lives. Many people repeat investments that are made by their relatives who have different needs and goals than theirs.
The obvious antidote seems to be that – each of us – must learn to choose the right financial products ourselves. This is obvious but wrong. This is because if you start considering the choice of product as the most important thing, you have already lost the battle. The most important thing is financial planning and goal-based investing. If the investment isn’t goal-based, it’s like you’re traveling in any random direction without deciding your destination. This way of making random investments is disastrous.
You need to gather knowledge about yourself first. What do you need to save? What will you do with the money? When will you need it? Are you sure how much amount you will need? What retirement corpus would be required for regular cash flow post retirement and at what age? What if the earner does not survive till the goal is achieved? How will the wealth be distributed after death? Surprisingly, many people have never sat down and thought about these questions.
Most of us have precise needs and aspirations that we can anticipate – specific financial goals that we need to meet at specific times. But, can we devise a plan to cater to all and make provisions for contingency? What will happen to our dreams and family if God forbid and something goes wrong? Can we draw a blueprint for this? If the answer is no definite, shouldn’t we take advantage of the services of professionals like certified financial planners who are experts in the subject?
Here’s why. If you want to meet specific financial goals, each will need to provide something with a different time frame, risk and return level. For example, you may prefer to have Rs 5 lakh always available for emergencies. Funding is required for higher education of children after few years (depending on age and number of children). You may prefer to buy a house after 10 years. You might like to go on vacation to Europe after 2 years.
Each of these goals is very precise but some are unavoidable and some can be compromised. The risk that you can take with them as well as the amount of money required can be determined quite accurately but need to protect not only assets but dreams.
The important thing to understand here is that you as an individual do not have a single pool of savings. Instead, you have multiple financial needs and goals, each with different needs. Investment is important for all the above factors, but disinvestment is equally important. To some it may seem illogical but it is not.
The goal of investing is to grow your money. However, this goal is accomplished only if you have withdrawn money from your investment and withdrawn it to your bank account. The timing and timing of redeeming your investment is the most important part of the process, especially when the investment is in equity-linked products.
People invest money through SIP in equity mutual funds for specific life goals like education, home, marriage, retirement. They are long term goals and avoid volatility in equity markets due to longer tenure of investment. However, it is entirely possible that just when your need for funds arises due to the completion of the target, the equity markets are on a downtrend and the value of your accumulated corpus is less than your targets. Thus, it is essential to protect your corpus which with the help of a financial advisor can do lesser known tools like Systematic Transfer Plan (STP) without getting dragged into emotions.
The flip side of the coin is an exercise that can reduce your returns if equity values ​​are rising. A qualified investment planner can optimize (not maximize) returns while keeping an eye on the risk.
Views are personal: The author is Darshit Gautam Shah – CFPCM at GK Globas LLP in Ahmedabad
Disclaimer: The views expressed are those of the author and are personal. TAML may or may not subscribe to it. The views expressed in this article/video are in no way intended to predict or time the markets. The views expressed are for informational purposes only and do not imply any investment, legal. or taxation advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for the consequences of such action by you.
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