How to be prudent investor..?

There are many investors that have very healthy portfolios. This means that not only have they invested in strong, long term, wealth building mutual funds and other personal finance instruments, but they have also followed some simple but strong  investment guidelines. If you want successful  investor, follow some given basic guidelines:

Asset Allocation :

There are many type of thoughts regarding asset allocation. Most individuals that come to us for Financial Planning aren’t sure what their ideal asset allocation should be. The most common approach are for asset allocation is age thumb rule. According to this rule that your equity exposure should be 100 minus your age and put the remaining money into debt.
The amount that you need to have in equity doesn’t depend on your age, but rather on your goal time horizon and your personal risk appetite and tolerance. If you have 10 years left till your financial goal comes around, you can go up to 75% into equity, with 10% and 15% in debt and gold respectively. If you have less than 3 years to go till your goal arrives, try and avoid exposure to equity altogether and go completely into fixed income products. Considering the current interest rate scenario, your debt portfolio could give better yield.

Inflation Impact

We should not underestimate inflation impact. Inflation is going to greatly increase your cost of living with each passing year. You will have to pay more to maintain your current life style. So make your financial plan to achieve your financial goal with the inflation factor. If you ignore inflation impact, certainly you will have to reduce your current life style in your future.

Time Horizon of investment

Before investment you should fix the tenure of investment. After fixing the tenure you should invest your money in suitable product. In general rule, if your horizon more than 10 year then invest in equity may fetch decent return. If investment horizon around 5 year then debt instrument is suitable option for investment and if you need money within one year but don’t know exact time, in that case you can consider liquid fund option.

Keep thing simple and know your risk appetite

When you think about investment, keep things very simple. Complex products always do not fetch great return. You should also know about your risk appetite and risk tolerance. Every person have different risk appetite and tolerance. It is very important to know about your risk profile because it is your hard earned money. Try to be honest and sensible with your money.

In choosing investment option if you have some problem, you can approach for advice financial planner or market expert.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com