Divide your investments properly for self-consumption, growth and income. Life will be simpler
There are many who are consistently telling themselves that since they are staying in a house that costs a crore or more, they will be able to leverage it when they want. Reality strikes them when they realise that maintaining the same lifestyle or purchasing a similar property in the same area can be a costly affair.
Similarly, a rise in value of jewellery worn by family members or long-term investment products like insurance schemes or employee provident fund (EPF) or public provident fund (PPF) should give you comfort. But they are not a part of your wealth that can/should be liquidated easily.
There are certain investments for self-consumption, some others for long-term planning, yet others that can be liquidated. All investors need to differentiate between these. Typically, a home, gold jewellery and car are made for self-consumption. So, an investor is unlikely to sell these for returns. Even if the prices/returns on these investments are going up, one can seldom sell them. A house, for instance, has to be replaced immediately.
Then, there are long-term retirement instruments such as pension plans, endowment plans, unit-linked insurance plans, long term fixed deposits (FDs), EPF and PPF, which cannot be liquidated immediately. They are investments for growth. Of course, one can take loans on some of these. But they have a lock-in period, making them quite illiquid.
Also, dipping into your retirement kitty too often can hurt badly. After retirement, you will need that money, when there won't be a steady income stream.
Finally, there are stocks, mutual funds, short-term FDs and cash in the bank, which form the liquid part of your portfolio. This part of your portfolio is supposed to provide you money in a jiffy for incurring some expenditure such as travel abroad or buying that expensive television. These are investments for income.
An important part of financial planning is goal-based investment planning. For one, it ensures you are aware the reason for which a certain investment is being made. Two, the investible surplus is divided among short-term and long-term goals.
Follow some simple rules to ensure that investments are being regularly made for funding goals. And, things will fall into place.