Many people rush to make last-minute and hasty investments to save on tax. Such hurried investments are usually made without much deliberation. The result - either the investment is unsuitable for your profile or you have to take a loss. Get down to financial planning and manage your finances well to meet your goal. Planning well in advance gives you ample time and opportunity to investigate, prepare and schedule investments.
Set Goals
The first step to financial planning is chalking out your goals and refining them. Next, define your risk appetite. A professional financial planner can help you save and invest for your future goals. Decisions have to be made based on inflation, income tax, current income and investment levels, asset allocation, and returns in various asset classes, expenditures, long-term commitments, short-term commitments and objectives. A financial planner will reassess your portfolio and provide recommendations on an ongoing basis.
Plan for expenses
Everyone wants to save for retirement, children's higher education and marriage. Buying a house is one major desire of most middle income families. Then vacations, festivities, medical and other expenses may crop up from time to time. It is essential to chalk out a proper financial plan to meet your goal. Build a portfolio with the right mix of investments that is in sync with your risk tolerance.
Here are a few options:
- Insurance
The main reason a person decides to buy a life insurance cover is to protect his family from any financial crunch in case of any distressing event. There are term life policies and whole life policies. Insurance cover itself comes in different flavors, meeting different needs and catering to different age groups.
- Equity
The stock markets are known for their volatility. These are usually long-term vehicles and investors must exhibit due diligence. In a buy-and-hold strategy, stocks with strong earnings potential and strong fundamentals are carefully picked. This is a passive strategy where you anticipate appreciation over the long term.
On the other hand, consider a market timing strategy. Here, the investor seeks to make the best out of short term swings. Whatever strategy you adopt, however risk tolerant you are, a thorough research on the stocks, market news, views and reports is essential.
- Debt
Though investors can be at peace with preservation of initial investment, debt instruments are not without drawbacks. Fixed deposits, PPF, post office deposits, bonds and even debt funds are preferred by the risk averse and those close to their retirement years. If you thought you could invest in any of these in the last minute without proper analysis, get ready for some shocks. The returns on debt instruments are viable only if they can beat inflation. Some debt funds have fared so poorly that the returns did not even match the ordinary bank interest.
- Mutual funds
Investors must not get carried away with fancy names. Mutual funds come with entry and exit loads. This fee is deducted from you, even if you make profits or losses. Mutual funds again come in numerous flavors. Balanced funds, pure equity, debt funds, sector funds, index funds and so on. Choose the ones that have a solid past performance and promising future.
Select the right mix of equity and debt investments in line with your risk appetite. Last-minute decisions can prove costly.
