The purpose of the investment is to make money, but sometimes the investments lose value. When planning an investment strategy, the primary considerations are how to reduce the risk that the investment portfolio will not work as intended. You must analyze the financial situation, the types of investments available, and the historical performance of the different types of investments. You can then choose investments that combine vital features to deliver the desired performance for acceptable risk.
This goal is an important aspect. You must decide if your goal is immediate income generation or long-term capital growth.
Government or corporate bonds pay interest and generate regular income. Investing in these income-generating bonds is one way to use existing savings to supplement your monthly income. You can expect a slow but steady return from different percentages, and the initial investment is still there when the security expires.
Retirees often generate income to supplement the pension. Younger investors seek growth more often. They want to make money by investing and making money. Growing investors are buying stocks they think are going up and selling them when they do. The most exotic investment options offering growth include futures contracts, whereby you acquire the right to buy or sell shares in the future; products with which the prices of materials such as cereals, oil or metals are speculated; and currencies, where you bet the value of foreign currencies.
Another consideration before investing is the liquidity of your investment: if you have savings and you are sure you will not need money over the next five years, you can connect your funds during this period and get superior performance. However, if something unexpected happens and you need cash, you can pay significant fines. The alternative is to invest in securities that you can sell at any time. You need to balance your situation with your revenue, growth, and liquidity needs, and select your investment appropriately.
A key variable that affects the amount you will earn from your investment is the amount of risk you are willing to take. Risk consists of two components: the amount you could lose and the probability of losing. Higher risk means higher income or higher growth.
One way to take into account the different considerations when you invest is to buy securities with different characteristics. Many people are not sure about needing cash, and some may appreciate growth even if they expect a little extra income. Diversification allows you to buy some bonds to earn income and others to grow. Some will be closed, and others may be sold at any time. Some will have high risks, most will be in the middle, and some will be very safe.
Because you are interested in the amount you will have after paying your taxes, you must analyze the tax implications before investing.
Different types of investments can give very different results after tax. Your tax situation has so many variables that you can calculate taxes using different scenarios or consult a financial advisor for professional help.
An investor must consider some essential elements before investing. If all this determinant are not taken into account, the investments will be dangerous, irrelevant, or worse, if not false. Investors must, therefore, consider three fundamental elements before investing:
Age: The age factor is essential for every investment decision. The choice of the placement instrument will depend on your age. If you are young, for example, at age 30, you may not have a lot of financial responsibilities, and your disposable income may be higher. As a young person, your earning capacity is more extended, and your ability to take risks is greater. As a result, you can invest a higher percentage of your income in risky assets, such as equities. Plus, you can expect more time to pay for your investment. This allows you to choose long-term investments such as ULIPS, ELSS, mutual funds, SIP, etc. Over the last 40 or 50 years, a person does not have this option because their responsibilities are greater, their life is shorter, their risk tolerance is lower, and their financial needs are different because of retirement future.
Risk Appetite: It is essential to understand the appetite for risk before making an investment decision. The level of risk tolerance varies from one individual to another and depends on the level of income, the financial debt, the current debt, etc. In general, the risk appetite of a person with a higher disposable income will be greater than that of an individual with a lower disposable income. A family member of a family of six (spouse, two children, his parents and himself) has more financial responsibilities than a person belonging to a nuclear family made up of his wife and himself. If the incomes of these two people are equal, the risk-taking capacity of the former would be much lower than that of the second. Consequently, the former would prefer to invest their funds in medium or low-risk instruments, such as fixed bank deposits, bonds, and debt funds, while the latter should be invested in capital and targeted investments to the money.
Objective: The investment objective is an essential factor to consider before investing. If the goal is to create a corpus for child rearing or marriage, it is fundamental to examine the security of capital. In this situation, the most obvious choice would be deposits, bonds, and mutual funds. However, if the investment objective is to take risks and aggressively pursue capital growth, the obvious option would be to invest in equities and equity instruments.
