Wednesday, 25 September 2013

Financial Planning - The 5 Best Investment Of All Time

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.

Risk Lover                   
Risk Neutral
Risk Averse
1.       Equity Investment
1.       Mutual Funds
1.       Bank Deposits
2. Futures
2.       Corporate Bonds
2.    Certificate of Deposits
3.       Forex Trading
3.       Exchange Traded Funds
3.       Government Bonds
4.       Debentures
4.       Gold
       4.    National Saving Certificate
5.       Arts and collections
5.       Real Estate
5.       Public Provident Fund



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!






2 comments:

  1. It's my pleasure to see this blog for sure your idea is working best for me.
    Steven Conville

    ReplyDelete