A financial plan is an ideal way to plan a secure future for you and your family. India is one of the few countries where there is little or no financial security for the elderly and retired. This makes saving and investing in the right financial products all the more crucial. Without a smart financial plan, you may find it difficult to manage your money wisely. There are multiple reasons to create a financial plan that aligns with your saving goals. If you know the advantages of saving and investing wisely, here are 10 tips that will help you achieve this.
1. Invest money based on well-defined financial goals
Once you’ve decided to start investing money, the first thing to do is decide your goals. Instead of opting for a scheme and investing money directly, set down your financial goals. Your financial goals should be of two types - short-term and long-term.
Defining your financial goals in a clear and precise manner will help you understand when and how much money you need. This can help you make an accurate investment plan for the future.
2. Don’t overlook the allocation of your assets
Asset allocation is the basic requirement when you decide to start investing. Assets can be allocated to various types: Debt, Equity, Gold, Commodities, Property, and Liquid (i.e. Cash). Each of these has separate rates of return, advantages, disadvantages and liquidity.
Therefore, how many funds are allocated in each asset depends entirely on your risk appetite. Understand your risk appetite and allocate your assets accordingly. It is also important to revisit asset allocation regularly instead of making one hard-and-fast rule.
3. Diversify your investments based on your appetite
“Don’t put all your eggs in one basket,” is a common phrase in the financial world. However, this does not mean you have to buy ten different financial products. Instead, diversify your investments based only on your appetite.
If you buy too many different funds in the first week of your investment, you may find it difficult to manage all of them. Instead, start with one or two and as your understanding of your financial requirements and financial products increases, you can diversify your investments.
4. Study financial products in detail before making a decision
The decision to buy or sell an investment is entirely up to you. However, you should do complete and detailed research before you make the decision. Use multiple avenues of knowledge to understand the advantages and disadvantages of your decision.
Buy or sell investments only when you can define why you are doing so. While taking advice is important, ultimately, the investment will affect your future. Therefore, you should be able to state clearly why you have taken a particular financial decision.
5. Review your investment portfolio regularly
Whether you have only one scheme in your portfolio or ten, you should review your investment portfolio regularly. It is recommended that you review your portfolio at least once a year or once every six months. Doing so will ensure you can identify any scheme that is not performing to your expectations. It can also help you book profit or avoid any losses. This can also help you rebalance your portfolio and manage risk and asset allocation. However, we do recommend not reviewing the portfolio every few weeks or months. This can lead to irrational decisions.
6. Don’t choose investments based on a rate of return
Rate of Return (ROR) is one of the most attractive numbers in any scheme, portfolio or bank account. However, your decision to invest in any product should not be based on this number. Instead, opt to do thorough background research on the financial institution. This will help you understand the institution’s track record and whether or not your decision is wise or not.
7. Don’t postpone taking action
If you have decided to make a financial decision - be it to make an investment or sell it - don’t postpone taking action. Postponing the action will only hurt you in the long run. For example, if you’ve decided to buy a mutual fund because it has affordable rates, don’t postpone. If you postpone the decision, the value of the fund may change and you may have to invest extra money. Similarly, postponing can lead to both profit or loss.
8. Plan for your retirement
Retirement is the inevitable goal for all people. Therefore, it is never too late to start planning for your retirement. When you calculate your retirement corpus, make sure to keep inflation in mind. If you don’t have any government pension, you can also opt for Guaranteed Income Schemes. Canara HSBC Life Insurance’s Guaranteed Income4Life Plan provides three primary advantages:
a. Assured loyalty additions
b. Limited premium payment options
c. Guaranteed Regular income option
9. Buy health and life insurance policies
Health and life insurance policies are two different but equally important products. A health insurance policy can help you cover the medical expenses of all emergencies. Generally, health insurance policies provide for hospitalization, medicines, surgeries, etc.
Life insurance policies are the second requirement. These can help you provide for your dependents in case of an untimely death. iSelect Smart360 Term Plan provided by Canara HSBC Life Insurance also includes the provision to add your spouse.
10. Invest in an insurance-cum-savings plan if you can’t afford a plain insurance policy
If you can’t afford a life insurance policy due to financial constraints, you can also opt for a insurance-cum-savings policy. The savings component in these policies can help you grow money while providing you with insurance cover. A prime example of this is the Invest 4G Plan by Canara HSBC Life Insurance. This flexible plan can be customized according to your requirements.
These are the top ten tips that will help you invest money wisely. Keeping these in mind will help you make the most informed decision for your finances. It is never too late to start planning for your future, and so, instead of postponing, take action.