In last article I explained various investment scheme for young adults. And in this article I will explain the importance of investing and what things you should consider before and during investing in detail.

What Is Importance Of Investing –

“If you do not find a way to make money while you sleep, you will work until you die.” 

– Warren Buffet. 

At present time when inflation rate is so high and interest rates of different instruments like saving accounts, fixed deposits, recurring deposits and many government backed schemes, Value of our saving falling. For example- the value of ₹1,00,000 landed in your saving account will not be same after one year, it will decrease. Because inflation rate is 5.03% in February of 2021 and interest rate of your saving account is 3-4%. So in my opinion investing money become our necessity at present time.

Today, many people specially youth generation understood the importance and necessity of investing and started investing in different areas. But sometimes due to lack of proper knowledge, they loose their hard earned money. So here I am explaining some important things which we should consider before investing.

Here Are The 10 Things That You Need To Consider Before Investing –

1. Decide Your Investment Goals – There are so many things which we want to buy or do in our life like buy a house, buy a car, travel abroad, buy expensive things and there are so many general needs of us like saving money for kid’s education and their marriage or our retirement plan. If we convert all of our desires in our investment goals then it will be easy to achieve all of these.
2. Decide Your Investment Timeframe – Once you are clear about your investment goal, you get an idea about by when you need to achieve that goal. And knowing the time frame of the goal will help you understand whether it is a short term goal, a midterm goal, or a long term goal. And you can build your investment strategy according this.
3. Build An Investment Strategy –  Once you are aware of the time frame, it will help you determine where you should invest your money and how much you should invest to achieve that goal. And before you make any investing decision, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before. You should know about your cash flow, from where your money is coming and where is your money going, what is your liabilities and how much you need for your emergency fund. So you can get an idea about how much you can invest and how much risk you can take. You can do this on your own or you can consult a professionals about this, if you need.
4. Create And Maintain An Emergency Fund – Most smart investors put enough money in a savings product to cover an emergency, like recent COVID-19 situation or sudden unemployment.  Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
5.  Evaluate Your Comfort Zone In Taking On Risk – Taking more risk than you can tolerate can give you sleepless nights which can eventually make you stop the investment before achieving your goal. So every investor needs to find out his own risk tolerance. All investments involve some degree of risk. Share market, mutual funds are more risky and FDs, Government bods are less risky. If any investment have high returns then it is riskier option. So you should evaluate your risk taking capacity before investing your money.
6. Decide Your Assets Allocation – Assets allocation is important because it has major impact on whether you will meet your financial goal or not.  If you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal and if you invest only in high risk option then you can loose some or all of your money. So if you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. And if it is so much for you then you can take help form a financial advisor.
7. Research The Market – It’s critical to take the time to research what factors may have an impact on your investments so you can make informed decisions. Understanding what’s going on in the market, domestically and globally, is important as it may have an impact on your investments. This can include things such as growth, unemployment rates, interest rates and inflation and even political events. So learning is the key, If you learn, you earn.
8. Diversify Your Portfolio – There is one saying – “Don’t put all your eggs in one basket.” It means don’t risk everything on the success of one venture. So diversify your portfolio with different investment methods. So by picking the right group of investments within an asset category, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.
9. Consider Rebalancing Your Portfolio – Rebalancing is bringing your portfolio back to your original asset allocation mix.  By rebalancing, you’ll ensure that your portfolio does not overemphasize one or more asset categories, and you’ll return your portfolio to a comfortable level of risk. You can rebalance your portfolio based either on the calendar or on your investments.  Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months.  The advantage of this method is that the calendar is a reminder of when you should consider rebalancing.
10. Consistency Is The Key – You need to consistently be focused with your investment plans. Investing money in a wise manner is not rocket science. But at the same time, you need perseverance and patience to see your invested funds yielding good returns. Sometimes your investment can go downward but all you needs to do is to work hard, stay patient and trust your plan.

Bottom Line – Investing is an essential part of wealth-creation, which helps you beat inflation to fulfill your financial goals and also stabilize your financial future. And Having the intent to invest is a great thing, but it loses its purpose if the goal, the investment tenure, and the financial tool for investments are not clear. So even before you start investing, try to find out these few things – why you are investing, for how long you would be investing, your risk tolerance etc. These steps will help you achieve your investment goals seamlessly.

If you need any help related to your investment then comment here or contact me.

Happy Investing.