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Smart Investment Strategies to Minimise Loss and Earn Consisten
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If you thought saving prudently and avoiding financial risks is how the rich made their money, then you couldn’t be more wrong. Most finance-savvy investors always think about the future and are on the look-out for new investment opportunities, both low and high risk ones.
An amateur investor will probably keep their money in a savings account to earn some profits. Seasoned investors, on the other hand, vouch for certain investment tools that have enabled them to increase their profits over a period of time.
To earn consistently, you must invest in schemes that will give you a decent return without risking your money. Here are some ways in which you can avoid losses and earn regularly from your investments.
Build a Diverse Portfolio
No matter how attractive you find a certain investment scheme, don’t put all your savings into it. For instance, if you put all your savings into a Bajaj Finance Fixed Deposit with attractive FD interest rates for 3 years, you won’t be able to make a profit until the FD matures. Or, if you invest heavily in shares of a single company that had a good potential but is underperforming now, you’ll end up losing a lot of money. A healthy investment portfolio has a mix of instruments like Mutual Funds, Fixed Deposits, insurance, stocks, bonds, debt funds, and other money market instruments.
Think About the Time Horizon
Most investment instruments come with a maturity period. Enquire about premature closure charges before you sign up for anything. If you decide to close your investment preterm then you’d be charged with a penalty unless mentioned otherwise. This move can take away from your profits as you’d not only lose the future interest amounts but will also lose a margin from the interest you’ve earned so far.
Know your Returns
Calculate the return you expect at the end of maturity before diving into any agreement. Some investment tools might look attractive at face value but might not give your desired returns due to market fluctuations. Some assets are influenced by market conditions and will not give you good returns if there is a decline in market value. On the other hand, some assets will show high appreciation value during inflation and give you purchasing power.
Weigh all the Charges
Investments aren’t as transparent as ‘a,b,c’. If you approach an analyst or an association to make investments on your behalf, then they will charge you their administration fees. These charges can significantly reduce the overall returns on your investments. There would also be additional charges like entry load, transaction charges, and exit load. Remember to include these expenses as well when you calculate return on an investment.
Get your Timing Right
This is especially important when it comes to buying stocks and shares of a company. Buying undervalued stocks of a company, which you believe to have great potential, and holding on to it over a long term can help you increase your gains.
For instance, when Amazon first went public in 1997, its stocks were valued at just around $18/share. It’s current value is estimated to be around $713.23 per share. So, if you had invested approximately $100 in Amazon’s stocks, your current shareholding would have been approximately $4000.
Therefore, if you invest at the right moment and hold on to the stock, irrespective of the current market value of a company, you might be able to gain more returns in the long run.
Keep a tab on Taxes
There’s no point in going ahead with an investment if the returns from it are heavily taxed. Taxation could decrease the overall profitability of your investment.
The interests earned from Fixed Deposits, Mutual Funds, stocks, and other performing assets are taxable according to the income slab you fall under. On the other hand, investing in some tax-saving assets would help you reduce the overall impact of taxes, which would lead to you maintaining a decent profit.
Assets like Equity-Linked Savings Scheme (ELSS) and Rajiv Gandhi Equity Savings Scheme (RGESS) will let you claim tax benefits under Section 80C of the Income Tax Act. If you’ve purchased a property with the help of a Home Loan, then you get to claim deductions on the principal amount and interest of the Home Loan.
Understand the Investment Thoroughly
It would be wise to conduct thorough research on the investment scheme you want to go ahead with, before signing on the dotted line. Knowing the rate of interest, rate of appreciation, performance history, and market value of the product is essential.
For instance, let’s assume, in the year 2015, shares performed better than bonds and equities. So, it would be a wise decision to opt for shares over bonds. If you have a lump sum, then instead of going for these high-risk assets, you can invest in real estate. Real estate is one of those sectors that has shown a consistent growth over a long term and can provide a hedge against inflation.
Making smart investments starts with staying current with market conditions and knowing your investments well. Know the market value of your assets and consult an expert to gain insight into the finer aspects of your investments.