TEN COMMANDMENTS of Personal Finance
Covid has brought much harm, but it has brought some benefits as well. Mutual Fund investments have increased to about 40+ lakh crores. Demat accounts have risen in unimaginable proportions. The market also recently hit a peak. This is all due to the arrival of many new investors. Here are 10 commandments that new investors need to know and veteran investors need to recollect:
Commandment One: No magic wand to make money.
To make money, there is no magic wand as many people think. Making big money requires proper planning, understanding and patience. Many people think that luck is necessary to make money, which has sometimes helped some people, but not at all times.
Commandment Two: Risk is more, Return is more.
Many of my clients are reluctant to take risks, but they need more profits. It's not desire, it's greed. For example, equity type schemes have higher risk and higher return potential. Debt funds are less risky and less profitable. Not just mutual funds, but this applies to all types of investments like shares, bank deposits, bonds, corporate deposits, etc. When the risk is high, the profit is high. When the risk is low, the profit is low. Always keep this in mind. Never forget. This is the most important commandment out of all the ten listed here.
Commandment Three: Don't take undue risk.
Because of the second commandment, don't fall into the trap that I will take more risk and make more money. Based on your financial position, your risk-taking ability should be to the extent that risk is manageable. To know more about your risk profile, take a risk profiling survey. Find out the risk level suitable for you, and then take the risk accordingly.
Commandment Four: Use more common sense.
You don’t have to be a gold medalist in finance to make money. A lot of times common sense is enough. Keep your eyes and ears open. Collect details about finance by reading, watching, and listening. Understand it. Invest accordingly. For example, if a bank gives half interest per month and a person or a new company gives double interest, your antenna should go up and ignore the high interest bite. This is the benefit of common sense.
Commandment Five Be Alert.
Investments require more attention. Distraction leads to losses. While investing online, or making money transactions, there should be no distractions even in the slightest. Don't trust anything in online financial transactions. Be very, very careful. Keep this in mind. Always be alert.
Commandment Six: Buyers Beware.
Sellers are clever and buyers are crooks. Don't be a loser in financial transactions. Let the sellers say whatever they want, we need to see if it is correct or exaggerated before we buy it. Don't buy it if you are in doubt. It is necessary to understand and we have to be sure before considering a buy. It will be beneficial not only for investment but also in life.
Commandment Seven: Do not believe in extraordinary returns
As indicated in commandment three, high interest rates of 12% or more lead to high risk. As given in the fourth commandment, do not invest and be deceived if someone or a company claims to give high interest when the bank gives six percent interest per annum. So do not fall into the trap of high interest rates.
Commandment Eight: Little planning will help.
You should plan and invest according to your financial situation whether it is less money or a ton of money. Proper planning is essential as to how much, where to invest and when to reap the benefits. Anxious or hasty investing will not help.
Commandment Nine: Tracking your investments and expenditures will help.
Making a good investment after thorough research is not the end. Don't sit back and rest. Investment has to nurture well. Annual review about how much return we got and if the company or scheme is doing well is necessary. In poorly performing cases, we need to switch tracks or fine tune the investment strategy.
Commandment Ten: Asset Allocation
Will it be alright if I invest all my wealth into one well-researched sure shot winner? The answer is definitely no. All over the world every kind of investment undergoes an asset cycle. The asset will perform good for some time and fall for some time. So instead of investing in one type of investment, we should invest in different types of investments like gold, equity, debt, and real estate. This means that even if one investment goes down, the next investment will go up and we will make a decent profit and the volatility in our portfolio will be less and our return is positive.
Finally, don't be too ambitious about financial returns. Moderate desire is enough. Plan your expenses. Know the risk. Invest in a wide range of investments according to your income. Maintain your investment well to get good results. All the best!
No comments:
Post a Comment