Economic freedom is a necessary need to realize other freedoms in life, and also to make life more effective and meaningful to society and fellow beings. It includes the freedom to save, invest, create, and enjoy the fruits of its access to markets, products, and appropriate government policies. Any defect in these important parameters or components will make financial freedom incomplete or inoperable.
One of the areas we need to focus on is an investment. As people, we are good savers but poor investors. This discrepancy in savings and investment behavior may be due to a variety of reasons, such as inherent distrust of investment products, a lack of financial literacy in large numbers of the population, fear of incurring losses, high returns from informal arrangements, and so on.
But with better literacy, better organization of markets, and better control of manufacturers and products, the landscape is gradually changing. It helps to transform the savings into a better way for the desired sectors and activities in the economy. A host of investment products are available today in the domestic markets with many attractive features for investors to choose from. This has created more efficient and effective access to markets for investors.
Accumulation not only helps wealth creation but also invests wisely. Other goals are care and transmission. Wealth accumulation is important, but the preservation of accumulated wealth after a certain stage in life is even more important. What many ignore is the need to put in place a mechanism or process to ensure that the wealth collected is transmitted smoothly.
In light of the epidemic and lockdown, there are some things we need to be careful of. We have seen markets fall and investment value plummet since the beginning of the epidemic, although markets have now regained lost land.
avoid news and reports that amplify market developments and exaggerate the facts
One principle that should always be followed is to largely avoid news and reports that amplify market developments and exaggerate the facts. It is better to avoid it. Do not place too much emphasis on news items and related developments. At all times you should seek the advice of a professional advisor who has a good track record and understands your financial situation well. Relying on a good advisor can solve most problems.
Apart from the two points mentioned above, there is a very important aspect to invest that should be taken care of, which is investing based on the risk profile and depending on your goals and objectives.
When managing an investment portfolio scientifically, one must insist on risk profiling so that the portfolio reflects one’s risk profile with asset allocation, which corresponds to the risk profile. Risk profiling is based on three main parameters, namely investment efficiency, awareness of financial markets and products, and psychological attitude towards events such as portfolio depreciation or loss.
Typically, risk profiling and asset allocation are over. An attempt has made to plan goals such as children’s education, retirement and lifestyle planning, major family functions such as travel and weddings. As we face in times of turmoil. We need to see if we are on track to achieve our long-term goals.
If the portfolio does justice to the long-term goals you set when embarking on the journey, you can take comfort in the fact that investments serve their intended purpose.
In times of instability and turmoil, the preferred mode of investment is phased investments, or what we call systematic investment plans. In such plans, investments are made in stages over time. It also helps to capture the price benefits of a fall in the markets and a gradual rise in prices. Economic phenomena or economic events take place in cycles. The negative portfolio impact of such cyclicality can be largely controlled by the chosen investment approach.
Diversification is important for a portfolio. The standard diversification is between asset, fixed income, or, asset classes such as debt and gold. These are just some of the goal-setting shareware that you can use. This allocation is based on the investor’s risk profile.
This diversification helps to maximize returns on the overall portfolio while moderating risk. There is also the perspective of the correlation between movements and returns in these asset classes, the correlation being weak from a value conservation perspective. Now, there is also diversification in every property class. One can invest in short-term products or short-term bonds or be exposed to long-term products.
short-term products and long-term products
The choice between short-term products and long-term products depends on the potential behavior of interest rates on these maturities. The app also includes other products such as floating rate products, tax-free bonds, permanence, and more. Coming into equities there is a spectrum of products – large-cap funds to mid-cap funds and small-cap funds, sectoral funds, and so on. So, the class under each property again has a significant amount of diversification. The choices one makes in these two levels of diversification largely determine the performance of the portfolio.
This may require professional help for most investors. When it comes to the serious business of investing one’s hard-earned money, make sure that one does not respond based on hearing and messages sent through phone messages. But here’s a word of warning. High-diversification and diversification dilute portfolio performance for its own purposes. To illustrate an example, the performance of a portfolio most often comes from certain devices in the portfolio.
Therefore, in relatively large portfolios, profits from better performers can be diluted by others. Therefore, much-measured diversification, as much as it is necessary, should reported to.
In case the investor has soak debt liabilities, it should be limited to a certain period of time. And a clear plan can drawn up for this purpose. In order to lubricate the debt, it is first necessary to reduce the debts with high costs. And to negotiate with the banks to gradually reduce the cost of funds over time.
It is possible to look at alternative lenders from the banking system to restructure loans. And make them more portfolio friendly. Another thing to take care of is employment. The epidemic has also wiped out millions of jobs in the US, Europe, and India. In case of job losses or due to some planned or unplanned break in the career. It is imperative that we plan for contingencies. As a rule, an amount equal to three months’ salary should be kept in a continuous reserve, especially for those in urban employment.
Joseph Thomas Head of Research at Emkay Wealth Management.
Disclaimer: The above report is compiled from information available on public platforms. Stockinvestor advises users to check with certified experts before taking any investment decisions.