|
|
|
|
It is always safe for an investor to avoid putting all his
eggs in the same basket. If things go wrong in one
investment class, as is likely to be the case from time to
time, diversification into different asset classes
safeguards investor’s wealth.
There are various options for an investor for
diversification.
|
|
Equities |
The stock market is historically
the best long-term investment vehicle -- one that can deliver
an average return of more than 15-20% annually for those
willing to stick it out for the long haul. In the short term,
however, the stock market is more volatile than other
investments. Consequently, investors with less risk tolerance
-- and this generally includes people who are close to
retirement age -- should put less money into the stock market
and invest more in fixed income instruments. Younger people,
however, can take on more risk because they have a longer
investing horizon. An investor can invest in equities either
directly or through equity schemes of mutual funds or ULIP
plans of insurance companies.
|
| Fixed Income |
Bank deposits/ Income Funds/
Bonds/ Debentures/ Government Securities are among the safest
of investments. Yet the bond market, too, has its up and down
swings. Also low risk means low returns. And even modest
inflation steadily erodes the value of an investment. Most of
these investment options will only marginally beat inflation.
|
| Other assets |
Besides financial assets,
investors could also look at investing in bullion
(Gold/Silver), Endowment Insurance policies or real estate.
Gold has proved to be an excellent hedge against inflation
over several decades and has infact outperformed most other
investment options during the last decade. The emergence of
Commodity exchanges now enables investors to take exposure to
metals/agro commodities, without actually taking delivery.
However investment in commodity exchanges could be as risky as
equity investments.
|
| Allocation is the key to
achieving an individual’s financial goals. An investors age,
risk tolerance and milestones will determine how much to put
into each of the three investment categories. Studies have
shown that asset allocation is the single most important
factor in determining returns from investing. There is no
single model portfolio that would meet requirements of all
investors. A proper evaluation of ones financial goals and
milestones and a clear articulation of ones own risk appetite
is the key to successful financial planning
It is never too late to get started, and it's never too late
to revamp or revise an asset-allocation plan. One of the best
ways to develop an effective asset allocation plan best suited
for your investment needs is to consult a qualified financial
planner.
|
|
|
|
|
