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Tata Capital > Blog > Wealth Services > Smart Investing: Five Steps To Your Investment Goal

Wealth Services

Smart Investing: Five Steps To Your Investment Goal

Smart Investing: Five Steps To Your Investment Goal

Investing is a journey, you learn along the way, however, if you step into it without any knowledge, then it could be an arduous task from the word go. It is important to prepare yourself enough to ensure that you embark on an investing journey that is peaceful and fulfilling. Here are 5 tips to help you get smarter at investing.

1. Always plan your finances

The first step towards successful investing is planning your finances, the adage, “Failing to plan is planning to fail” sits well in this context. Budgeting your expenses, savings and commitments could help you assess the unnecessary areas where your money is being routed. It facilitates rationalise your expenses, debt commitments, etc.,

Several apps will help you with budgeting, they are simple and easy to use. Given that we have moved into a digital mode in terms of transacting, it is only logical that we also hold our budgeting at our fingertips. It is also an excellent way to take control of your lifestyle expenses.  Budgeting is one of the few ways which will help you from falling into the debt trap.

2. Identify your goals and enumerate them

The next step is to always have goals towards which you move, investing without goals can be quite haphazard and difficult to manage. You must sit down, think and put together your financial goals. Always include your family members whilst planning your financial goals. Having goals is insufficient, you need to enumerate them, this is more technical than it sounds, and you will have to consider inflation and other aspects to project the corpus required for your financial goal. For example, if the car you desire to buy 5 years from now costs Rs. 10 lakh, then in 5 years, assuming an inflation of 6%, the corpus required would be ~Rs. 13.4 lakh.

Calculating the corpus for each of your needs could be a daunting task, especially so for a need like retirement where the requirement is annuity based. TATA Capital financial goal calculator comes to your rescue, you can use this calculator to easily compute the corpus required and start planning for your goals. Financial goals are not static, they change based on the life stage that you are in, the number of dependents, your age, and aspirations, etc., hence it is important to strategically revisit your financial goals as and when you have shifted in your life stage and reassess as required.

3. Assess your risk appetite

The next most important aspect is risk assessment, typically many individuals fail to do this integral step as part of their investing journey. They end up either underestimating or overestimating their risk appetite. It is important to get a proficient risk assessment done, this will set the tone for the type of investment opportunities that suit you best. Here again, risk appetite typically reduces as you age and move up your life stage. There comes a time when you become conservative and want to preserve your wealth, towards retirement your exposure to risky assets will be negligible.

There are a few questionnaire-based solutions available on the internet, which can be used. However, you should take the help of financial experts who can make a comprehensive assessment that is also realistic.

4. Create an emergency fund

In today’s times, life itself is uncertain, job security is almost non-existent. Hence, it becomes important to have at least 6 months’ worth of household expenses in highly liquid investment avenues. This fund could cater to your medical needs or any other unforeseen expenses. Every time you dip into the emergency fund, remember to replenish. As a strict policy, do not dip into it for lifestyle expenses. Instead of parking the funds in a savings accounts or Flexi- fixed deposits, which are still easily accessible, you should consider parking them in debt mutual funds which offer ample liquidity. They are easy to liquidate and provide decent returns. This will also discourage you to redeem funds for lifestyle or unnecessary expenses.

5. Optimise your asset allocation

Don’t put all your eggs in a single basket, this is the universal rule concerning investing. Diversification is the easiest means to lower your risk, it helps your portfolio to stand tall even during turbulent times in the market. You need to add uncorrelated assets in your portfolio to ensure that one tends to perform well when the rest are struggling. A classic example would be to add gold and equity together, when the equity markets are turbulent, it is a known hedge against inflation and a safe haven.

Asset allocation should not only align with your financial goals but also with your risk appetite. You need to also monitor your portfolio to ensure that it is performing as desired. You may choose to make tactical and strategic changes as required. If you feel overwhelmed with the whole concept of portfolio building and managing, you can reach out to professionals who will do it for you and keep you abreast with the portfolio performance and investment opportunities.

To wrap it up:

Hope this brief note helps you get started on your smart investing journey! However, if you want professional guidance, do reach out to the experts at Tata Capital Wealth and we will help you start your investing journey.

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