Investing for long term goals needs patience, commitment and more importantly, tenacity
Finding the right investment option is always a tough exercise. The challenge gets tougher when it comes to long-term investment planning. An investor needs to take into account a number of factors such as inflation, risk, liquidity and more importantly, needs to sustain the investment process over a long period of time. While such an exercise gets simpler when an investor has a long tenure at his disposal, it is not easy if the tenure is less than a decade.
While it may be wrong to use the word long-term planning in such a scenario, many investors end up thinking about long-term planning only when they have less than a decade at their disposal. The classic example is retirement planning which gains focus for many just prior to retirement.
Start early:
Needless to say, the entire process of long-term planning turns easy when an individual starts thinking about it early in life. While long-term is a relative term, it is safe to assume it to be in the range of 15-20 years. Not only does it help the investor plan well, the element of risk too gets nullified over a long term. More importantly, an investor can plan resources to meet his goals when he has a couple of decades in hand.
Plan goals:
Interestingly, some goals are long-term by default as the occurrence of the event does not happen in the short term. For instance, building the corpus for a child's education or marriage is a long-term goal if you start setting aside the money immediately after the child is born. In such a scenario, even a monthly saving of Rs 5,000 can help the parent build a corpus of a few millions thanks to the compounding effect. Because of the luxury of a long tenure at his disposal, the investor too can look at risky options such as equity as they have the potential to offer higher returns over a long term. Though equity carries an element of risk, it is not an issue when the investor has a long period at his disposal.
Returns through plan tenure:
While building a portfolio for the long term, it is not necessary to block the money completely, as even long-term investment products can provide regular returns. For instance, investors can opt for dividend plans even while building a corpus for long-term needs such as a child's education. The only disadvantage with dividend options is that an investor's corpus to meet the goal could come down to some extent if the dividend is not set aside in a careful way. The other way of looking at a dividend plan is that it allows profit booking in an indirect way and could prove a better strategy during a downtrend. Since dividends are tax-free (at least for the time being), investors need not worry about tax implications. Also, it provides liquidity even if the investor has committed his money for a long term.
Sustenance crucial:
The most significant element of long-term planning is sustenance, which is an integral component. An insurance plan or a pension plan signed up for 15-20 years needs to be serviced for the entire tenure even if the product offers the flexibility of discontinuance. By converting long-term investment planning into a short-term investment process, you would devoid yourself the potential of building a large corpus for long-term needs. Hence, commitment to invest is a crucial factor while choosing a long-term investment plan.
Finding the right investment option is always a tough exercise. The challenge gets tougher when it comes to long-term investment planning. An investor needs to take into account a number of factors such as inflation, risk, liquidity and more importantly, needs to sustain the investment process over a long period of time. While such an exercise gets simpler when an investor has a long tenure at his disposal, it is not easy if the tenure is less than a decade.
While it may be wrong to use the word long-term planning in such a scenario, many investors end up thinking about long-term planning only when they have less than a decade at their disposal. The classic example is retirement planning which gains focus for many just prior to retirement.
Start early:
Needless to say, the entire process of long-term planning turns easy when an individual starts thinking about it early in life. While long-term is a relative term, it is safe to assume it to be in the range of 15-20 years. Not only does it help the investor plan well, the element of risk too gets nullified over a long term. More importantly, an investor can plan resources to meet his goals when he has a couple of decades in hand.
Plan goals:
Interestingly, some goals are long-term by default as the occurrence of the event does not happen in the short term. For instance, building the corpus for a child's education or marriage is a long-term goal if you start setting aside the money immediately after the child is born. In such a scenario, even a monthly saving of Rs 5,000 can help the parent build a corpus of a few millions thanks to the compounding effect. Because of the luxury of a long tenure at his disposal, the investor too can look at risky options such as equity as they have the potential to offer higher returns over a long term. Though equity carries an element of risk, it is not an issue when the investor has a long period at his disposal.
Returns through plan tenure:
While building a portfolio for the long term, it is not necessary to block the money completely, as even long-term investment products can provide regular returns. For instance, investors can opt for dividend plans even while building a corpus for long-term needs such as a child's education. The only disadvantage with dividend options is that an investor's corpus to meet the goal could come down to some extent if the dividend is not set aside in a careful way. The other way of looking at a dividend plan is that it allows profit booking in an indirect way and could prove a better strategy during a downtrend. Since dividends are tax-free (at least for the time being), investors need not worry about tax implications. Also, it provides liquidity even if the investor has committed his money for a long term.
Sustenance crucial:
The most significant element of long-term planning is sustenance, which is an integral component. An insurance plan or a pension plan signed up for 15-20 years needs to be serviced for the entire tenure even if the product offers the flexibility of discontinuance. By converting long-term investment planning into a short-term investment process, you would devoid yourself the potential of building a large corpus for long-term needs. Hence, commitment to invest is a crucial factor while choosing a long-term investment plan.
