Choosing the right investments for wealth creation is a process. It is so much more than choosing current outperformers.
When it comes investing for wealth creation, many people agonise excessively about the “right investment” or “winner investment”. Since individual investors typically don’t have the expertise or the time to do this, they often falter in their endeavour. It also distracts them from the ultimate goal of wealth creation: fulfilling their financial goals like buying a home and child’s higher education. So, what is the right approach for selecting investments? Here’s a brief primer.
Selecting the Right Investments
“There is a scientific process of selecting an investment. One need to identify what one’s goals are, what is the amount required and the investments need to be selected accordingly,” says Aashish P. Somaiyaa, CEO, Motilal Oswal AMC. Here are some steps that you need to take.
Earmark investments for financial goals
“The most crucial factor to consider while selecting investments is to look at the best use of your money as well as determine your short term and long term goals,” says Radhika Gupta, CEO, Edelweiss Asset Management. This means you need to identify and list out your financial goals. Your selection of appropriate investments will have to be according to the needs expected to arise in the short- and long-term. For nearer-term requirements, you will need to avoid higher risks associated with high growth and will need the money to be accessible. For longer-term needs, you can opt for investments that carry higher risks but can handsomely reward you.
Identify the risks
Remember, every investment carries some risks. It is important for every investor to identify them. So, while it is volatility and downturns for equity investments, for fixed income investments it is interest rate movements and inflation. On the other hand, investments in physical or real assets such as real estate, carry risks of liquidity of the investment.
This story is from the September 24, 2018 edition of Outlook.
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This story is from the September 24, 2018 edition of Outlook.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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