“Know what you own, and know why you own it” – Peter Lynch
Investing for the first time can be both exciting and intimidating. While saving money helps cope with challenging times, Investing money plays a vital role in increasing your wealth. But before we start our journey in the world of finance let us understand the basic difference between Savings & Investment.
Savings is when you keep cash in an extremely safe & readily available form. Savings are ideally to meet short term goals like paying off loans, taking a vacation etc. It is easily & immediately accessible. Generally, it is at zero risk & a reasonable interest can be earned.
Investment involves using your money to generate returns over time. So, investments are used to generate wealth. They are planned for long term goals like buying property or children’s education. Funds that are invested are not readily accessible. Risks involved are higher than regular savings, however, the returns are potentially much higher and it rises in value over time.
A smart investor creates a good balance between the two, Savings & Investment.
Different types of assets usually make up an investment portfolio. The decision of which asset to include in your portfolio, how diverse your portfolio should be and how much of your funds is to be used, depends completely on your individual profile.
Before deciding “Which investment?”, it is good to think about “Why should I Invest?”.
So any investment you chose should be aligned with:
- Your Goal- What do you need the money for?
- Liquidity – Do I have enough money kept aside for an emergency?
- TimeLine – Do I need this money within the next few years or can it stay invested for a long time?
- Risk Tolerance – High return investments also come with a higher risk to the principal amount.
This is an investor profile. Once your profile is clear then the decision of “Which” investments becomes easier. To begin with, invest in safe, secure and well-researched assets. Don’t look for high returns right from the word go, they come at high risk too. Make sure you reassess your portfolio regularly. And last but not the least look into the tax benefits of the different assets. So plan carefully, chose sensibly & watch your money grow!