How should you invest your money to build wealth?
Investing smart is undeniably the most fool-proof and surest ways of creating wealth over time. Irrespective of where you are in your investment journey, it’s time to make your money work as hard as you do.
However, when it comes to investing, as the case should be – there is no one-size-fits all. The way you invest, what you invest in, and when you choose to do so, has a ton to do with how you’re placed. Personal finance is well…‘personal’, after all!
Investing should ideally be based on the following parameters:
Your long-term investment objectives
Heard this before? You probably have! But did you pick up a pen and piece of paper and note down your short, medium, and long-term investment objectives? If you choose to invest a certain amount of money, when do you believe you’re going to need it? Are you going to need a part of it two years from now for a down-payment on your car, five years from now for that down-payment on a house, or do you need to periodically pull out money from your investments to meet your travel goals? Each objective might need a different investment instrument or even within the same instrument, different defined durations, to get you to these objectives.
Your investment approach and style
Are you an aggressive investor who’s comfortable with the high stakes and high risk that accompanies it? Or have you always chosen the more conservative investment instruments that give you guaranteed, periodic returns? Your lifestyle, budget, risk tolerance, and general interests might give you a better understanding of who you are as an investor.
How you choose to invest your money should also depend on:
The amount of time you have to dedicate
You may be the type of person who puts in a few hours fine-tuning your investment strategy on the daily. Someone with a high risk tolerance may be more comfortable spending time trading on and watching the stock market frequently. On the other hand, if you’re someone who has chosen to invest in products that do not require you to monitor and manage them all the time, mutual funds might be the right investment for you.
How much you want to know
All the time in the world wouldn’t help if you don’t consistently learn how to better your investment game. Whether you’re someone who wants to stick to a conservative approach — provident funds, fixed deposits, and debt funds, or someone who’s more willing to take chances — stocks, equity investments, crypto; how you choose to invest should ultimately be based on how much you know and how much you are willing to learn. You must be familiar with the basics of each type of investment, before you choose to go ahead with a decision.
Choose investments that match point 1 and 2
Figuring out ‘how’ to invest money involves asking ‘where’ you should invest money. Common investment options include:
Stocks: Individual shares (part ownership) of companies you believe will increase in value over the years.
Bonds: Bonds allow a company or even the government to borrow your money as part of an investment to fund a project. Bonds are considered fixed-income investments and typically make regular interest payments to investors. The principal is then returned on a set maturity date in the future.
Mutual funds: Investing your money in funds — like mutual funds, index funds, or exchange-traded funds (ETFs) — allows you to purchase several stocks, bonds, and/or other investments all at once. Mutual funds build instant diversification by pooling investor money and using it to buy a basket of investments that align with the fund’s stated goal. Funds may be actively managed, with a professional manager selecting the investments used, or they may track an index.
Gold: Gold has become far more accessible as an investment in financial form, via sovereign gold bonds of the government, digital gold, gold ETFs, and more.
Real estate: Real estate is a way to diversify your investment portfolio outside of the traditional mix of stocks and bonds. Real estate that you do not actually live in and occupy is typically considered an investment.
So there you have it, some pointers to keep in mind as you further your investment journey and build up your investment game.
(This article is written by Dipika Jaikishan, COO & Co-Founder, Basis, and is co-authored by Rebecca Edwin, Head – Content, Basis)