We are in the final leg of our Introductory Series for DIY Financial Planning. It’s about investing, why should one invest and where can/should one invest. As a matter of fact, it’s as important as the other three FP components, and you should start investing as early in life as possible. Despite that, the reason to put it towards the end in our series is that it’s a long term phenomenon. Unless you have a lot of money to have it invested right away and from that earn enough to live the rest of your life, It’s not something you would do outright, like purchasing an insurance.
There is this phrase that the money saved is the money earned. I would go further and say the money invested is the money rightly saved. In today’s time, saving money is not enough. You need to turn that saved money into a source of income. It can either be to generate secondary income besides your main income at present or to generate primary income at a later stage of your life when you plan to retire from work. In either case, you should start investing, and do it as early as possible. Here, investing means putting your money in such Financial Instruments/Products which earn you substantial returns on your investment for as long a period as it takes to leave you with enough retirement corpus at the end of that period.
There are many areas where you can invest your saved money. Bank FDs, Corporate Deposits, Mutual Funds, Gold, Stocks, Bonds, PPF, Real Estate etc are the popular ones. They belong to different asset classes and mostly require goal based investing. For example, say you want to invest for your recently born kid’s higher education. Here, on the goal part, you will have to decide a certain sum (say, 20 Lac) that will be needed after a certain period (say, 20 years). Now, you will need to find out the amount that you will have to invest at regular intervals and an asset class to invest that money in to realise your goal. Depending upon goals, asset classes change based on term, risk appetite and expected returns. Setting up goals also help you choose right asset classes to invest and minimise the risk of cluttered investment portfolio.
Remember, investing is a long shot and you shouldn’t expect any miracle to double or triple your wealth overnight. It is a focused, disciplined approach for wealth creation. Yes, a carefully planned investment portfolio containing proper mix of assets classes can earn you handsome returns in the long run, generate secondary income or even primary income to let you become financially independent. Sounds good, right? Well, on paper yeah, except for the fact that there are very few wealthy people as compared to those who are not wealthy. (Being wealthy would mean different things to different people, but for my arguments’ sake, I would consider being wealthy a monetary condition where one wouldn’t have to earn for a living. Rather, his money/investment will earn a living for him, making him financially independent.) People hoping for short term gains and overnight jackpots are often left disappointed. It is pretty much like your gym schedule. You wouldn’t grow biceps or ab muscles overnight, would you?. You will need to work towards it very hard, eat as per diet, stay disciplined and get yourself improved gradually. Similarly, you invest in a carefully chosen financial products, stay regular and disciplined in subsequent investments, review your investments at regular intervals and get yourself financially improved day by day.
Start investing as early as possible, because it gives you the benefit of compounding. Choose investment areas carefully based on specific goals. Review your investments at regular intervals and make amendments as necessary. Once this FP Component (with other Components of our DIY Financial Planning) is in order, you can consider having made your financial life fairly safe and on track.
Well, this is where this introductory series ends. In coming posts I will be writing in detail about various topics mentioned throughout the series as well new developments in financial products’ world. Feel free to suggest and comment.
Will be back soon…