Every individual in this world is assumed to be a rational decision
maker who is never satiated with his resources. In this globalized competitive
world people have increasingly become conscious about their financial wellbeing
and materialistic in nature. The lifestyle of people over the years has become
more tedious who work hard to keep pace with the continuous dynamic competitive
environment. All over the world, people have got well acquainted with the
liberalized world and they have started to enter the work space early and
are very serious about their personal, professional and financial goals. Young
people are more aware about the world they live in and so set out to start life
early with long term goals. The global economy is presently undergoing serious
economic changes in the last few years and the recent recession has taught us, we can expect more such crisis in the future for a positive change and also how
to avoid or sail through such times of economic hardships. So in such a
changing environment it is important to put your savings into investment that
would yield reasonable returns for your hard earned money to meet your various
financial goals. Here are few tested investment strategies that would help you
plan your investment portfolio according to your needs.
1. Stocks: Equity shares or stocks are the best pick of all
time. The best investment plan for high returns is equity linked investment. If
you closely observe the investment portfolio arranged by any financial mentor,
it will have a heavy share for equity. Though investment in equity is bound to
give you high returns it is subjected to market risks and are highly uncertain
because of the volatile nature of the stock market. Thus those who are risk
appetite or risk lover can go for equity investment because it is bound to give
you huge losses or high yields based on the overall performance of the market.
When you focus on high returns on investment, equity focused portfolio is
essential which is aggressive in nature. Even an aggressive investment
portfolio should be well balanced to mitigate the risks to a certain degree. So
equity investment is ideal for those who set out to plan their financial goals
early and are in their mid 30s or 40s. On the other hand for those who are
nearing their retirement unless you have huge savings and liquid cash it is advisable not
to invest in stocks. Though you have saved more during your work life it is
good to go for other investment avenues like pension funds, bank FDs, diversified
equity linked mutual funds etc. than stocks. If you are still insisted to
invest in stocks, have small share for equity. Equity investment is for long
term so it is important to keep your money invested in stocks atleast for more
than 5 years. Short term investment in equity will result in a big blunder
which you might regret later. The returns are given to you by the companies in
whose shares you are invested in the form of dividends from their profits. So
it is advisable to pick quality stocks that have shown good track records in
the past and whose Earnings Per Share (EPS) is robust.
2.Mutual Funds: Sometimes one cannot choose the best stock in
the market that offer high yields as lack of experience, in that case the
investors can allow their fund manager to choose diversified stocks that tend
to give decent returns. So it turns out to be that mutual funds are excellent
investment vehicles for non-trained investors.The equity linked mutual
funds are same as investing in equity shares but the only difference is that
instead of buying shares directly you buy them through mutual fund units.
Mutual funds are considered to be one of the best investment avenues as they
tend to invest your money in various diversified stocks. A mutual fund
investment portfolio may consist of many shares that give you good returns on
your savings in the long term. For new investors mutual fund investment is the
best and safest route to invest in equity as it is generally managed by experts
of the share market. There are several advantages of investing in mutual funds.
Some of them are they allow best investment diversification. The only thing
that you need to look is keep your entry time right. Make sure that you don’t
invest when the market is overvalued and let the market dip for a while to
invest. Mutual funds can give you good returns than your own portfolio as it is
managed by experts. Another easy route for non-trained
investors is the Exchange Traded Funds (ETFs) which can be traded online just
like equity shares. Some of the common mutual funds available are diversified
equity funds, index funds, Exchange Traded Funds, Equity Linked Savings Scheme
funds (ELSS) and sectoral funds.
3. Real Estate:The best investment avenue for risk neutral that
can give fixed good returns is real estate. Returns from real estate investment
may not be as good as equity but they are very reliable. The reasons to
consider real estate investment are many. The real estate sector has just undergone
a boom period as it resulted in huge profits for the investors across the
globe. The returns of the real estate investment is very liquid as monthly rent
and is very certain and predictable. The rental yield from the real estate
investment only increases with increase in time. But the capital appreciation
that you will get in the long term will compensate for the low yield in the
initial years as real estate investment is considered to be an asset that
creates wealth. Other fixed income investment plans for risk neutral investors
are government securities, bonds and debt instruments.
4.Commodities: Commodity investment is termed as a best
investment plan during inflationary situation or economic downturn. This
includes investing in gold, silver, oil etc. Among these gold is the most sought
after investment option of potential investors. Commodity futures are positively
correlated with inflation. When the overall general price level rises commodity
futures tend to rise as well. Sometimes commodity prices tend to rise during
economic downturns as in the present situation. Thus, commodities can serve as a
hedge against inflation, stock market and economic risk. But investment in commodities
is always not the best way for all types of investors though they are less
risky than stocks as their yields are highly volatile and uncertain. Commodities
and stocks tend to have a negative correlation and this is very evident from
the recent financial crisis. The performance of commodities and stock are
opposite in direction over the time. When stock prices go down, commodities
tend to move up and vice versa. Thus, a portfolio invested in stocks and
commodities is likely to experience less volatility than a portfolio that is
comprised of only stocks during recession and economic slowdown.
5. Fixed Deposits: These are best investment option for risk averse
investors as they provide you standard returns. This investment avenue is
suitable for all types of investors; the reason being is its suitability as a
risk free investment. In this type of investment you need to lock your money
for a predefined period of time and the gross interest that you earn is quite
reasonable. There are different types of fixed deposit investment plans namely
deposit in banks, deposit with companies and Fixed maturity plans of mutual
funds. The deposit in banks is the easy and common one when it comes to fixed
returns. These days all savings accounts are linked with fixed deposit accounts
and this makes it easy and convenient for you to transfer your money directly
from your savings to FD account. The duration of the deposit period can range
from few days to several years depending on the bank. The interest you will
earn will depend on the principal value of investment and the tenure of the
deposit. You can also withdraw money when needed. Remember the income generated from fixed
deposits is taxable. The same goes with companies but they are a little riskier
than bank FDs.
The Fixed Maturity plans are offered by mutual fund companies where they ask
you to invest your money in any of their fund for a certain period of time. In
case of FMP of mutual funds be careful and read the documents and conditions
clearly as there is growing number of fraudulent cases related to these plans.
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The above mentioned investment plans are some of the common
investment options that worked out quite well in times of economic volatility.
These investment avenues have given reasonable returns on the long term.
However, one has to understand that there is no thumb rule or a straight shot
answer for a best investment plan for all types of investors at all time.
Remember that a good investment portfolio consists a mix of various investment avenues
in different proportions based on the degree of your risk taking behavior. When
making investment decision a lot of factors need to be taken into account. Few
of the important decision factors to consider are your investment horizon or
time horizon, financial goals, market situation and finally your personal financial constraints. An investor can always expect good returns and create
wealth by making wise investment decisions. Just be patient and consistent in
your investment decisions. Good Luck!
